In some of her most pointed remarks yet, Yellen on Wednesday warned that any further delay to raising rates could be detrimental to the economy.
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Economic conditions in the United States are ripe for the Federal Reserve to start raising its benchmark interest rate this month, the central bank’s head said on Wednesday (early yesterday in Singapore), in the strongest sign yet that a hike in borrowing costs is all but inevitable barring a sharp change in circumstances.
The Fed is on course to raise rates at a time when the European Central Bank (ECB) is going in the other direction as it bids to revive the stagnant eurozone economy. But the labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, likely rose from a near 38-year low of 62.4 per cent. Employment gains in November were likely broad-based, though manufacturing and mining probably lost more jobs.
“The U.S. economy has recovered substantially since the Great Recession”, she said, citing a decline in headline unemployment to 5 percent today from a 2010 peak of 10 percent.
The dollar initially strengthened on the currency markets, indicating more confidence that higher interest rates were around the corner. “Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession, reported the British newspaper, The Guardian”.
Even so, inflation remains subdued, and the Fed’s preferred gauge hasn’t hit its 2 percent goal since 2012.
Yellen also discussed her global economic outlook, saying there has been “relatively weak growth” overseas.
While the vast majority of economists and stock market watchers now anticipate the Fed will raise rates from about 0% to 0.25% in December, there is a lot of uncertainty about what comes next.
“Fed officials will look closely at Friday’s jobs report, the last before their next meeting, Yellen also said”.
“It’s very important for me to emphasize that there is no such plan” to proceed in such a “mechanical or calendar-based way”, Yellen said.
“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.
Some economists argue that the recent wage increases haven’t been large or consistent enough to justify a Fed rate hike.
Yellen repeated past comments that she believed two key factors keeping inflation below the Fed’s 2 percent target – the rise in the value of the dollar and falling oil prices – were likely to fade over time.
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“The economy has come a long way toward the FOMC’s objectives of maximum employment and price stability”, Yellen said, referring to the Federal Open Market Committee.
