The US Federal Reserve appears unlikely to
raise interest rates in the coming months after it's chair Janet Yellen said
the world's biggest central bank would "proceed cautiously".
The increasingly dovish language from Dr
Yellen comes amid concerns that the recovering US economy remains exposed to
the global economic slowdown and potential fallout from a hard economic landing
in China.
The Fed recently signaled that rate rises in
2016 had been scaled back from four to two quarter point increases as inflation
remains stubbornly low at 1.7 percent and on a slow track to the target of two
percent.
"Developments abroad imply that meeting
our objectives for employment and inflation will likely require a somewhat
lower path for the federal funds rate than was anticipated in December," Dr
Yellen told the Economic Club in New York.
"Given the risks to the outlook, I
consider it appropriate for the Committee to proceed cautiously in adjusting
policy."
The US central bank raised rates from their near zero levels in December for the first time in almost a decade, signalling
the emergency from the Wall Street meltdown in 2008 was over.
When the Fed kept rates on hold earlier this
month at between 0.25 and 0.5 percent, it pointed to global market volatility,
record low oil prices and concerns about China's economy.
But Dr Yellen still has an "expectation
of fading headwinds" that will keep the Fed on track for "gradual increases" as appropriate given that the US economy has proven to be"remarkably resilient."
"The overall fallout for the US economy
from global market developments since the start of the year will most likely be
limited," Dr Yellen said.
Growing expectations that US rates will
remain on hold for the next few months saw Wall Street stocks rally with the
Dow Jones Industrial Average closing 0.56 percent higher.
The US currency fell and as a result the
Australian dollar surged by more than one percent to 76.3 US cents.
Dr Yellen's caution reins in comments from
other FOMC (Federal Open Market Committee) members that another rate hike was
likely in April or June.
Blackrock fixed income chief Jeff Rosenberg
said Dr Yellen's comments were unexpectedly dovish and pushed out rate rise
forecasts.
"We're pricing out expectations and
reducing our probability of expectations for when that next interest rate hike
is going to come if it ever does come," Mr Rosenberg told Bloomberg.
Dr Yellen's dovishess comes as major central
banks around the world - including the European Central Bank and the Bank of
Japan - pursue a negative interest rates strategy.
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