Fed Likely to Stick with its 2015 Plan

The U.S. Federal Reserve is likely to stick with plans to raise interest rates later this year, with progress toward its employment and inflation goals helping allay concerns over the economy’s recent weakness, current and former Fed officials say.  Fed Chair Janet Yellen, who on Friday will talk about the economy’s prospects, is expected to acknowledge the recent sluggishness, including near stagnant performance in the first few months of the year.

But she will also probably repeat the mantra that better days should follow a temporary swoon, and highlight the economy’s steady job growth, keeping the Fed on track for its first policy tightening in nearly a decade.  Interviews with current and former Fed officials suggest that policymakers do not need much more evidence that the economy can withstand a modest initial rate rise by September, long seen as a reasonable time to act.

“We have not seen a significant disruption on the employment side, and inflation looks like it’s pretty well contained for now,” despite the first-quarter slowdown, said Jeffrey Fuhrer, senior policy advisor at the Boston Fed, which is among the more dovish Fed banks.  Alan Blinder, a former Fed Vice Chair, said the combination of the economy’s lower potential output, worries about prompting financial instability, and the fact that the Fed has long telegraphed a move in 2015 are speaking in favor of at least taking the first step toward reducing monetary stimulus.