Yellen says Fed could raise rates 'relatively soon'

Dr Yellen said Fed policymakers at their meeting earlier this month judged that the case for a rate hike had strengthened.
Dr Yellen said Fed policymakers at their meeting earlier this month judged that the case for a rate hike had strengthened.PHOTO: AFP

WASHINGTON • The Federal Reserve could raise United States interest rates "relatively soon" if economic data keeps pointing to an improving labour market and rising inflation, Fed chairman Janet Yellen said yesterday in a clear hint that the US central bank could hike rates next month.

Dr Yellen said Fed policymakers at their meeting earlier this month judged that the case for a rate hike had strengthened.

"Such an increase could well become appropriate relatively soon," Dr Yellen said in prepared remarks delivered before the US congressional Joint Economic Committee.

Those were her first public comments since the US elected Republican Donald Trump as its next president. Mr Trump has criticised the Fed and Dr Yellen's handling of monetary policy in the past.

She made no mention of the prospective policies of the incoming Trump administration, but other Fed officials in recent days have said a major change in fiscal policy could force them to shift gears if, for example, inflation began to accelerate. But they also said they needed to wait and see what the new administration proposed and what got approved by the Republican-controlled Congress.

Dr Yellen said the current federal funds rate of between 0.25 and 0.5 per cent was boosting economic activity, and the country had "a bit more room to run" before inflation became much of a concern.

She added that keeping rates low "for too long could encourage excessive risk-taking and ultimately undermine financial stability".

Her remarks will serve to cement expectations, barring a significant negative surprise, for an increase in interest rates when the Federal Open Market Committee meets in Washington on Dec 13-14.

On the key issue of inflation, which remains below the Fed's 2 per cent target largely because of low oil prices, Dr Yellen noted that it "has increased somewhat since earlier this year".

The US economy appeared on track to grow moderately, which would help bring about full employment and push inflation towards the 2 per cent target, she said.

An inflation gauge monitored by the Fed - the price index for personal consumption expenditure - rose to an annual rate of 1.2 per cent in September.

Dr Yellen noted that labour market conditions had improved and that economic growth had "picked up from the modest pace seen in the first half of this year".

REUTERS, AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on November 18, 2016, with the headline 'Fed chief hints at rate hike next month'. Print Edition | Subscribe