Fed interest rate hike could come ‘relatively soon’: Janet Yellen

Janet Yellen signals that the Federal Reserve is close to lifting interest rates as the US economy continues to create jobs at a healthy clip and inflation inches up

Christopher Condon, Rich Miller
Updated18 Nov 2016
The Fed chair Janet Yellen warned of the risks attached to waiting too long before raising rates. Photo: Bloomberg
The Fed chair Janet Yellen warned of the risks attached to waiting too long before raising rates. Photo: Bloomberg

Washington: Federal Reserve Chair Janet Yellen signalled the US central bank is close to lifting interest rates as the US economy continues to create jobs at a healthy clip and inflation inches up.

A rate hike “could well become appropriate relatively soon if incoming data provide some further evidence of continued progress toward the Committee’s objectives,” Yellen said in the text of testimony she is scheduled to deliver on Thursday in Washington before Congress’s Joint Economic Committee.

Yellen, who made no mention of the prospective policies of the incoming administration of President-elect Donald Trump, reiterated the expectation of Fed officials that future rate increases will be “gradual.”

Yellen’s remarks will serve to cement expectations, barring a significant negative surprise, for an increase in interest rates when the Federal Open Market Committee gathers in Washington 13-14 December. Pricing in federal funds futures contracts already imply a greater than 90% chance of a quarter-point hike.

The Fed chair warned of the risks attached to waiting too long before raising rates.

“Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the Committee’s longer-run policy goals,” she said. “Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability.”

She added because current policy is only “moderately accommodative” that mitigated the risk to the economy of the Fed “falling behind the curve in the near future.”

At their most recent meeting, earlier this month, Fed officials said the case for raising rates had “continued to strengthen” and that risks to the US economy appeared “roughly balanced.” Bloomberg

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