The Reserve Bank boss believes a US interest rate hike will happen before Christmas, but is confident that it shouldn't impact Australia too much.
RBA governor Glenn Stevens told a parliamentary committee on Friday that the Federal Reserve's first rate hike in nine years is inevitable.
"I would still think an increase in the Fed funds rate is probably going to happen this year," he said.
The Fed on Friday announced it would keep its interest rate unchanged amid worries about the slowdown in China.
However most members made it clear that they still expect rates to rise by the end of 2015.
The US central bank has kept its interest rate near zero since the onset of the global financial crisis, but now the US economy is finally dragging itself out of the 'great recession'.
Unemployment has halved in the past six years to 5.2 per cent.
Mr Stevens said the Fed's next move on rates was the most anticipated one he's ever seen, which should help limit its impact on financial markets.
"You would hope that something that is pretty clearly telegraphed, when it finally emerges into fact won't seriously derail our financial markets," he said.
"I don't think Australia will be materially affected."
With the Fed funds rate so low it is anticipated that there won't be just one rate rise but several in order to get it back to a more normal level.
"The specific question actually is when is the second move," Mr Stevens said.
"It's that slope of that Federal funds rate into the future, or the anticipated slope, that will potentially affect financial markets."
However, one factor that might cause some volatility, Mr Stevens said, is that it's been such a long time since the US has had a rate rise.
"There are a lot in the financial world who have not seen the Fed raise rates, so there could be a few upsets," he said.
Of the 17 Fed officials at the September policy meeting, 13 indicated they expect a rate hike by the end of this year, most of them pointing to a 0.25-0.50 per cent range.
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