US Fed chair says gradual interest rate hike likely

By Ovunc Kutlu

NEW YORK

A gradual increase in Federal Reserve interest rate is still likely after weak jobs data last week, Fed Chair Janet Yellen said Monday.

The U.S. economy added just 38,000 jobs in May, its fewest since September 2010, and raised questions about the likelihood the Fed would raise interest rates this summer. But, Yellen's remarks Monday were optimistic.

"One should never attach too much significance to any single monthly report," she said during her speech at the World Affairs Council of Philadelphia, referring to the unemployment report released last Friday.

"If incoming data are consistent with labor market conditions strengthening and inflation making progress toward our 2 percent objective, as I expect, further gradual increases in the federal funds rate are likely to be appropriate," she said.

The remarks indicate that the Fed is likely to wait until July to gauge improvements in labor conditions and the jobs report in June before making a decision on a rate hike.

"Based on her speech today, Fed Chair Janet Yellen might still be in favor of a July rate hike, but it will require a bounce-back in June's employment figures and a vote by the U.K. to remain in the European Union," Paul Ashworth, Chief US Economist of Capital Economics, told Anadolu Agency in a note.

Yellen was also hopeful in her speech about the economy moving in the right direction as she expects continued expansion, improvement in the labor market and GDP growth.

She said the Federal Open Market Committee will make policy decisions based on incoming macroeconomic data and risks against the economic outlook but stressed that there is no fixed route for a rate hike.

Ashworth said there could be a rate hike in July if "labor market indicators remain robust.

"We still think the Fed will raise rates twice this year, in July/September and December," he said.