WASHINGTON—Federal Reserve Chair Janet Yellen on Wednesday indicated that the U.S. economy is on track for an interest rate hike this month, but she said the Fed will need to review incoming data before making a final decision.
Yellen gave an upbeat assessment of the economy’s progress since the Fed’s last meeting in October, describing it as in line with its expectations for the labor market and inflation.
But she added that policymakers need to be cautious in deciding when to start raising rates given that the Fed doesn’t have much room to cut them if the economy begins to falter.
Yellen’s comments in a speech to the Economic Club of Washington came two weeks before the Fed’s final meeting of the year on Dec. 15-16. The central bank is widely expected to raise interest rates for the first time in nearly a decade. The Fed’s benchmark rate has been at a record low near zero for the past seven years.
Paul Ashworth, chief U.S. economist at Capital Economics, said Yellen was “quite explicit in making the case” for a December rate hike.
In her speech, Yellen said that the economy has recovered “substantially” since the Great Recession of 2007-2009, and she expressed confidence that it will continue growing at a pace strong enough in coming months to further boost the labor market.
“When the (Fed’s policy committee) begins to normalize the stance of policy, doing so will be a testament ... to how far our economy has come in recovering from the effects of the financial crisis and the Great Recession,” Yellen said.
Yellen stressed that the pace of future rate hikes was more important than the timing of the first move, which would still leave rates at historically low levels. She reiterated that the pace of subsequent increases was likely to be gradual, meaning that rates for consumer and business borrowers will remain favorable for a while.
