“With the federal funds rate near zero, we can respond more readily to upside surprises to inflation, economic growth and employment than to downside shocks”, she said.
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Yellen said the labor market has made substantial progress since the Great Recession, with unemployment falling to 5% from 10%, and signaled the Fed is on track to raise interest rates from near-zero levels at a December 15-16 meeting.
She said that raising interest rates would show “how far our economy has come in recovering from the effects of the financial crisis”.
Gus Faucher, senior economist at PNC, said he was looking for a rate hike “barring much weaker data over the next couple of weeks”.
“On balance that’s led and I think it will continue to lead to growth that is somewhat above trend and on a continuing path of labour market improvement”, Yellen said. This report helps support a December rate hike. “Along with that, Yellen’s comments (were) the final sign (the Fed) is bent on raising rates”, said Bryant Evans, investment advisor and portfolio manager at Cozad Asset Management, in Champaign, Illinois.
In remarks prepared for delivery to Congress, Yellen also said the market is close to the central bank’s goal of full employment, and that drags on inflation will diminish next year.
Specifically, Yellen mentioned that gains in the labor market had “bolstered” and “strengthened” her confidence that inflation would return to the Fed’s 2 percent target over time. So, absent a major disappointment with Friday’s jobs number or major financial market volatility, we’re on the verge of the first rate hike since 2006.
India had nothing to cheer about on Thursday as data releases and a statement by the Fed chairperson Janet Yellen on an imminent rate hike kept the markets in a turmoil.
“It does have the potential to have a significant economic effect”, she said.
“When we have divergent monetary policies globally, it often means that there will be exchange rate movements that accompany that”.
But several lawmakers peppered her with worries about the state of the USA economy and concerns that the Fed was moving in a direction different from the European Central Bank, which announced new stimulus measures Thursday.
A Department of Labor report Thursday showed that first-time unemployment claims rose by 9,000 last week but remain relatively low.
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The Fed chief also reiterated her strong opposition to a bill recently passed by the House that would force the Fed to follow a formula, based on inflation and economic growth, to determine interest rates.
