Yellen says 'looking forward' to day of rate hike

Yellen (above) did not indicate if she still expected a rate hike in December 2015.
Yellen (above) did not indicate if she still expected a rate hike in December 2015.PHOTO: REUTERS

WASHINGTON (REUTERS) - Federal Reserve chairman Janet Yellen said on Wednesday she was “looking forward” to a US interest rate hike that will be seen as a testament to the economy’s recovery from recession.

Yellen did not indicate if she still expected a rate hike would be warranted at the Fed’s last remaining policy meeting this year on Dec 15-16.

In her remarks to the Economic Club of Washington, she expressed confidence in the US economy, saying job growth through October suggested the labour market was still healing although not yet at full strength.

She also reaffirmed her view that the drag from abroad on US economic growth and inflation would start to moderate next year.

Already, she saw risks from abroad as having dissipated since the summer, and noted consumer spending was “particularly solid” and that its outlook remained positive.

“When the Committee begins to normalise the stance of policy, doing so will be a testament... to how far our economy has come,” she said, referring to the Fed’s policy-setting committee.

“In that sense, it is a day that I expect we all are looking forward to.”

Investors were already betting the Fed would lift its benchmark rate this month from the 0 to 0.25 per cent range where it has held since 2008. Economists also see a strong chance of a December lift-off.

The dollar initially strengthened on the currency markets, indicating more confidence that higher interest rates were around the corner.

“Yellen gave a fairly positive assessment of the economy that would be consistent with the Fed raising rates at their December meeting,” said Vassili Serebriakov, currency strategist at BNP Paribas in New York.

As in previous speeches and public appearances, Yellen said the timing of the first US rate increase in nearly a decade was not as important as the path of subsequent hikes, which policymakers expect will be gradual.

Waiting too long to raise rates could deal an accidental blow to the economy, she warned.

“An abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession,” she said.

Responding to a question after her speech, she said the Fed would weigh incoming data to set the pace of hikes and that policymakers do not expect a mechanical path of rate moves.

The Fed schedules policy reviews eight times a year and in the past it has often raised rates at successive meetings.

“This may turn out to be a very different cycle than past cycles,” she said.