Many observers were expecting the Fed to hike rates in September, but the Fed played spoilsport and did not do it. The Fed probably deferred its decision in light of the depressed economic conditions in many parts of the world and low inflation in the US. At that time, many people accused Ms. Yellen of indecisiveness. They said, when push came to shove, the Fed shrugged and choose to play it safe by keeping interest rates unchanged. The Fed never clearly explained why they did not hike the rates.
But at a recent speech at the University of Massachusetts, the Federal Chairwoman Ms. Janet Yellen came out clear and said that the Fed is probably going to increase interest rates before the end of 2015.
Ms. Yellen says slow growth in inflation is due to 'transitory' factors
The comments came during a lecture she was delivering at the University of Massachusetts, titled 'Inflation Dynamics and Monetary Policy'. She also commented on the lackluster inflation, attributing it to 'special factors' which she said were 'transitory'. She added that she and most of her colleagues at the Fed agreed, it would be right to raise interest rates before the end of 2015. Later, they would increase the rates gradually, as the labor market improved and inflation increased.
She also said the employment situation had improved drastically over the past several years but further improvement was welcome because the US had still not reached a state of full employment. She added that most Federal Open Market Committee participants reported that unemployment rates were approximately 4.9 percent in the US, which was close to the term average rate but she believed this estimate understated the actual ground situation on unemployment. This means, the unemployment rates were worse than they thought. She said, lower energy prices had affected inflation. Other factors affecting the lack of growth in inflation were slack in the labor market and dollar appreciation in the past.
Ms. Yellen accused of selling hope without actual plan to achieve growth
Some analysts felt the Fed Chairwoman was 'selling hope' (that the inflation would rise) without actually specifying the steps to be taken to achieve it. For instance, Ms. Yellen said was even though inflation was running at 'near zero' during the last year, she was 'sure' it would rise up to 2 percent in the coming two or three years. There are not many takers for these kinds of promises outside the Fed. All that the market can do in the coming months is wait for the impending rate hike and hope inflation rises as the Fed has said it would.