The Federal Reserve could raise US interest rates “relatively soon” if economic data keeps pointing to an improving labour market and rising inflation, Fed chair Janet Yellen said on Thursday in a clear hint the US central bank could hike rates next month.
Ms Yellen said Fed policymakers at their meeting earlier in November judged that the case for a rate hike had strengthened.
“Such an increase could well become appropriate relatively soon,” Ms Yellen said in prepared remarks that were her first public comments since the US elected Republican Donald Trump to be the country’s next president.
Ms Yellen, who was to deliver the remarks to Congress’s joint economic committee on Thursday afternoon, said the economy appeared on track to grow moderately, which would help bring about full employment and push inflation towards the Fed’s 2 per cent target.
Representatives on the committee, which includes members of both the House and Senate, will have an opportunity to question Ms Yellen after she speaks.
Upbeat
The Fed chair gave a generally upbeat assessment of an economy that continues to generate jobs at a pace adequate to absorb new employees and keep others engaged in work.
Wage growth “has stepped up,” Ms Yellen said. Consumer spending, critical as the major component of US gross domestic product, “continued to post moderate gains,” and help economic growth rebound from a weak first half. She said she expected firming in global growth, for months now considered a primary risk given weakness in Europe and China.
Indeed the major question mark for the Fed may now be the actions of president-elect. His cabinet and policies are still taking shape. But the proposals outlined in his campaign could change the Fed’s baseline outlook substantially if he follows through on plans to cut taxes, roll out hundreds of billions of dollars in new infrastructure spending and rip up free trade agreements.
Election
Ms Yellen did not mention the election in her prepared remarks.
Other Fed officials in recent days have said a major change in fiscal policy could force them to shift gears if, for example, inflation begins to accelerate. But they also said they need to wait and see what the new administration proposes and what gets approved by the Republican-controlled Congress.
As it stands, Ms Yellen said the current federal funds rate of between 0.25 and 0.5 per cent is boosting economic activity, and that the country has “a bit more room to run” before inflation becomes much of a concern.
Right now, she said, “the risk of falling behind the curve in the near future appears limited,” and warrants only a gradual increase in the federal funds rate.
But that could shift, particularly as the new administration takes shape.
“The appropriate path for the federal funds rate will change in response to changes to the outlook,” Ms Yellen said.
US stocks opened little changed on the comments. – (Reuters)
