Federal Reserve Chairwoman Janet Yellen said she was looking forward to raising interest rates Wednesday afternoon, hinting that the conditions are in place for the central bank’s long-awaited first rate hike.
“In that sense, it is a day that I expect we all are looking forward to,” Yellen said in the text of a speech prepared for delivery in Washington.
In her speech, Yellen did not directly address the prospects of when the Fed might raise rates. But she did suggest that the timing could be soon, explaining that recent U.S. job growth “helps strengthen confidence” that inflation will rise toward the Fed’s target. Confidence that inflation will rise is the main criterion for raising rates laid out in recent Fed statements.
Waiting too long, Yellen also warned, could pitch the economy back into recession.
Yellen’s stated concern, which could be taken as a response to other members of the Fed who have counseled patience in tightening, is that if the Fed delays for too long, inflation could rise above the Fed’s target. That would force the Fed to tighten abruptly, which would “risk disrupting financial markets and perhaps even inadvertently push the economy into recession.”
Yellen’s comments were delivered ahead of a highly anticipated Fed monetary policy committee meeting scheduled for Dec. 15 and 16. A number of Fed officials were expected to talk about their thinking on the state of the economy and the prospects for tightening money this week ahead of next week’s self-imposed “blackout” period before the meeting.
Bond markets Wednesday afternoon before Yellen’s speech indicated that investors were pricing in a greater than 75 percent chance that the committee would decide to raise rates. The Fed has held its short-term interest rate target near zero since late 2008. The last time it announced a rate hike was in 2006.
In a question-and-answer session following the speech, Yellen also addressed the question that is increasingly preoccupying Fed-watchers now that a December rate increase is expected: how fast the Fed will raise rates afterward.
Yellen answered that the Fed will react to economic data, accelerating or delaying further increases in the Fed’s short-term interest rate target as needed. “There is no plan to proceed over time in some mechanical or calendar-based way,” Yellen said.
