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US economy can absorb gradual hikes: Fed chief

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WASHINGTON: The United States is healthy enough to absorb further gradual rate increases and the slow wind-down of the massive bond portfolio accumulated by the Federal Reserve during the financial crisis, Fed chairman Janet Yellen said yesterday in prepared testimony to be delivered to Congress In what may be one of her last appearances on Capitol Hill, Ms Yellen depicted an economy that, while growing slowly, continued to add jobs, benefited from steady household consumption and a recent jump in business investment, and was now being supported as well by stronger economic conditions abroad.

The Fed "continues to expect that the evolution of the economy will warrant gradual increases in the federal funds rate over time," Ms Yellen said, while reductions in the Fed's more than US$4 trillion (S$5.5 trillion) in securities are likely to begin "this year".

She said the economy is on an even keel, near or beyond full employment.

Interest rates are rising, and "would not have to rise all that much further" to reach what the Fed considers a neutral rate that neither encourages nor discourages spending and investment, she added.

The reduction in the balance sheet, which will begin slowly, will mark the final exit from crisis-related policies. - REUTERS

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