Federal Reserve’s Yellen says watching inflation closely but economy is strong

The US economy remains strong and the strength of the labour market calls for continued gradual increases in interest rates despite subdued inflation, Federal Reserve Chair Janet Yellen said on Sunday. "We will be paying close attention to the inflation data in the months ahead," Yellen said in prepared remarks at an international banking seminar in Washington. "My best guess is that these soft readings will not persist." Yellen also said she expected the US economy to exceed its long-term trend during the second half of the year and repeated the impact of recent hurricanes on the economy should be temporary. The US central bank voted to hold interest rates steady at its last policy meeting in September. Since then, Yellen has repeatedly acknowledged rising uncertainty on the path of inflation, which has been retreating from the Fed's 2 per cent target rate for much of the year. Minutes from the meeting, released last Wednesday, showed policymakers had a broad debate about recent soft inflation and the impact on interest rates if it fails to rebound.