Yellen paves the way for US interest rate rise this year

JANET Yellen yesterday declared that the case for another interest rate rise in the United States has ‘ strengthened’ – setting the scene for a hike before the end of the year.

During a highly anticipated speech in Jackson Hole, Wyoming, the Federal Reserve chairman hailed the strength of the world’s biggest economy in the face of global headwinds.

‘In light of the continued solid performance of the labour market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months,’ she said.

The comments, at the annual jamboree of central bankers in cowboy country, fuelled speculation that rates would rise again before the end of the year – possibly as soon as next month.

The Fed raised rates for the first time in nearly a decade last December, from around zero to between 0.25pc and 0.5pc, but has kept them there ever since.

By contrast, the Bank of England cut rates in the UK from 0.5pc to 0.25pc this month, and has not raised rates since 2007.

Following Yellen’s comments, Putri Pascualy, a strategist at Paamco in California, said: ‘We’re on for this year. Finally, lift off time. Although I have to say rather than a rocket, I think it’s going to be a very gradual take-off.’

Minh Trang, a senior currency trader at Silicon Valley Bank in California, said: ‘ The overall takeaway not just from Yellen but for the week is that all the Fed officials have all taken a hawkish bent. The only downside I see is that there are only three meetings left this year and time is running out.’

Phil Orlando, a strategist at Federated Investors in New York, said: ‘We continue to believe December was the next logical date for a hike but based on comments from Fed officials lately and the argument from Yellen I guess you can’t take September off the table.’

Figures published yesterday showed the US economy grew at an annual rate of 1.1pc in the second quarter of the year. That is the equivalent of quarterly growth of between 0.25pc and 0.3pc – less than half the 0.6pc growth rate seen in the UK.