Fed’s Yellen: Rate hike likely appropriate ‘relatively soon’

Friday, 18 November 2016 00:04 - - {{hitsCtrl.values.hits}}

AFP: Federal Reserve Chair Janet Yellen said Thursday an interest rate increase likely will be appropriate “relatively soon” as long as there is further evidence of progress in the economy.

However, in testimony prepared for delivery to the Joint Economic Committee of Congress, Yellen said the Fed expects it will only have to raise rates gradually.

In her first public comments since the surprise election last week of President-elect Donald Trump, who has criticized the Fed and Yellen’s handling of monetary policy, Yellen noted that labor market conditions have improved and economic growth “has picked up from the modest pace seen in the first half of this year.”

At the last meeting in November, monetary policymakers decided the case to increase the key interest rate “had continued to strengthen and that such an increase could well become appropriate relatively soon if incoming data provide some further evidence of continued progress,” Yellen said.

The Federal Open Market Committee kept rates unchanged last month, but analysts widely expect the Fed to hike rates at the 13-14 December policy meeting, one year after the first and only rate increase following the financial crisis.

And on the key issue of inflation, which remains below the Fed’s two percent target largely because of low oil prices, Yellen noted it “has increased somewhat since earlier this year.”

She said there is still room for improvement in the labor market, even with some signs of wage increases, but Yellen expects “economic growth to continue at a moderate pace” to help improve labor market conditions and push inflation higher.

She cautioned that the Fed cannot delay raising rates for too long, as that risks having to tighten policy more abruptly “to keep the economy from overshooting” inflation and employment targets.

Keeping rates low “for too long could also encourage excessive risk-taking and ultimately undermine financial stability,” she said.

Even so, the Fed expects “the economy will warrant only gradual increases in the federal funds rate over time.”