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Rates to rise but trajectory tempered
Whilst an interest rate rise in the US appears likely before the year end, the testimony given by Janet Yellen, the Fed Chairwoman, last night, suggested that the trajectory of future interest rate rises may be less steep than originally anticipated.
The current forecast for US interest rates suggests a rise to 0.625% by the year end, which would imply that we will see two interest rate rises as the Fed looks to move rates away from zero. However, five Fed members appear to believe that only one rate rise will be enough this year. Officials reduced their forecasts for the end of 2016 from 1.875% to 1.625% and for end of 2017 from 3.125% to 2.875%.
Yellen was again careful to emphasize that the timing of the first interest rate rise was less important than the trajectory of subsequent future rises. The statement released was clear in that the first rate rise does not necessarily mean that there will be a constant succession of further hikes. More so, that any future rate rises will be data dependant, in particular a pickup in inflation and wage growth and evidence that any rate rise will not derail the economy.
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