Fed Chairwoman Janet Yellen: Interest rate hike could come ‘relatively soon’

Janet Yellen, chairwoman of the Federal Reserve, testified during a Joint Economic Committee hearing on the economic outlook, in Washington, D.C. on Thursday. She indicated to Congress an interest rate hike could come as soon as December, but said there is room for growth in the country's joblessness rate. Photo by Kevin Dietsch/UPI

WASHINGTON, Nov. 17 (UPI) — Federal Reserve Chairwoman Janet Yellen told Congress on Thursday that an increase in interest rates could come “relatively soon” as economic indicators point to an improving job market and rising inflation.

Yellen, in a meeting with the Joint Economic Committee, indicated the rate hike could come as soon as December, when the Federal Open Market Committee meets. She reiterated the future rate increases would be “gradual,” but made no mention of how the incoming administration of President-elect Donald Trump might affect the hike. She warned of the risk of waiting too long.

“Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the committee’s longer-run policy goals,” Yellen said in prepared remarks. “Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability.”

Feds have left the interest rate untouched since the last hike in December 2015, which had been the first tightening since June 2006.

Yellen mostly reiterated what was expressed in the November Federal Open Market Committee meeting, saying officials needed further evidence of an improving economy. Since then, wages grew by 2.8 percent in October and employers continue to add new jobs. Retail spending also was up in October and September, marking the strongest two-month sales stretch in some two years.

With a 4.9 percent unemployment rate, Yellen said there is still room for improvement. The joblessness rate is slightly above what most Fed officials see as the lowest sustainable level of unemployment.

“While above-trend growth of the labor force and employment cannot continue indefinitely, there nonetheless appears to be scope for some further improvement in the labor market,” she said.

“Further employment gains may well help support labor force participation as well as wage gains; indeed, there are some signs that the pace of wage growth has stepped up recently.”

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