The US interest rate will likely increase several times a year reaching 3 percent by the end of 2019, US Federal Reserve Chair Janet Yellen said at the Commonwealth Club in San Francisco on Wednesday.
The Federal Reserve chair noted that the timing of the next rate increase will depend on how the US economy evolves in the coming months. "Nevertheless, as the economy approaches our objectives, it makes sense to gradually reduce the level of monetary policy support," Yellen concluded.
But she added that the Fed wants to "make sure the economic expansion remains strong enough to withstand an expected shock", given that it doesn’t have much room to cut interest rates.
Yellen said that, as the economy gets closer to the Fed’s goals on employment and inflation, it will make sense to “gradually reduce” the level of support the Fed is providing by raising interest rates.
"Waiting too long to begin moving toward the neutral rate could risk a nasty surprise down the road - either too much inflation, financial instability, or both," Yellen said. "In that scenario, we could be forced to raise interest rates rapidly, which in turn could push the economy into a new recession."
The Chairman of the Board of the National Currency Association (NCA), Dmitry Piskulov, speaking with a correspondent of Vestnik Kavkaza, said that the US Federal Reserve System has announced its intention to to raise rates a long time ago and increased it in the last year.
"These expectations have already been included in prices. We see that the dollar appreciated against the major currencies. Its rate against the euro was lower than 0.5, and there are expectations that it may hit parity. But, nevertheless, an increase in the interest rate by the US Federal Reserve System must be accompanied by economic growth. If it happens, then we must also look at Trump's main economic provisions: he threatened to return jobs to America. Together, this may mean a certain outflow of capital from emerging markets. Another thing is that many emerging markets have begun to play a more an active role, because they have a more active high profitability of investments," Dmitry Piskulov explained.
Regarding the impact of raising a base interest rate on the global financial market, the expert believes that it of a dual character.
"On the one hand, of course, we can see the growth of the dollar exchange rate, on the other hand, we must see if it is supported by the growth of the US economy in general, the US Fed expects economic growth in the US and continues the policy of cheap money," the chairman of the Board of the National Currency Association (NCA) is confident.
"We must look at the economic situation and the inflation rate - they should be correlated. In the early 1980s, the rate in the US was 18%, in the mid-1990s - 6-7%, therefore it is not historically high for the US. It depends on the level of returns to capital, the economy growth and the level of inflation," Dmitry Piskulov concluded.
The Federal Reserve System is the central banking system of the United States. The Fed influences the amount of money and credit in the US economy. Its maing goal is to achieve maximum employment and the highest possible rate of economic growth. The federal discount rate is used as the Fed's tool to either stimulate or rein in the economy. The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility.
