Yellen: US economy doing well; December rate hike possible

Yellen testifies before the House Finance Committee in Washington, DC.
Yellen testifies before the House Finance Committee in Washington, DC.AFP

WASHINGTON (AFP) - Federal Reserve chairman Janet Yellen said Wednesday that US economic activity remains solid and that the Fed could decide to increase interest rates at its December meeting.

"At this point I see the US economy as performing well," she told a congressional panel.

Domestic spending is growing "at a solid pace" and the Fed expects the economy will continue to grow fast enough to boost the labour market and begin pushing inflation toward the Fed's 2 per cent target, she said.

Given those conditions, she reiterated the position taken by the policy-making Federal Open Market Committee (FOMC) at its meeting at the end of October.

"Our statement indicates that December would be a live possibility" for an increase in the federal funds rate, she said.

However, she stressed, it also depends on what data says about the US economic outlook when the FOMC meets on Dec 15-16.

Markets and economic policymakers worldwide have been fixated for months on when the Fed will undertake the first increase in the fed funds rate in more than nine years.

The rate has been locked extraordinarily near zero since 2008 to foster economic growth.


But even as the US has slowly recovered from the Great Recession, slower global growth has kept the first increase on hold as the Fed weighs ongoing risks to the US economy.

Yellen downplayed the importance of the first increase, expected to be a mere 0.25 percentage point, and stressed that it will mark the start of a slow series of increases.

"Markets and the public should be thinking of the entire path of policy rates over time," she said.

"That will be a very gradual path," and depends on the path of the economy, she said.