Federal Reserve

Fed chair Yellen signals US rate hike coming ‘relatively soon’

PUBLISHED : Friday, 18 November, 2016, 1:11am
UPDATED : Friday, 18 November, 2016, 1:11am

Federal Reserve chairwoman Janet Yellen on Thursday signalled that the US central bank is close to tightening policy in December.

A hike in short-term interest rates “could well become appropriate relatively soon if incoming data provide some further evidence of continued progress” toward the objectives of the Fed’s policy-setting Federal Open Market Committee (FOMC), she said during a congressional hearing.

In her first public remarks since the presidential election last week, Yellen said US economic growth “appears to have picked up from its subdued pace earlier this year.”

She warned that the central bank is reluctant to delay its next raise in the target for the benchmark federal funds rate from the current 0.25-0.5 per cent for 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” on inflation and jobs, Yellen said.

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“Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability,” she said.

The Fed has kept the federal funds rate intact since December of last year, when it raised borrowing costs from near zero in the first credit tightening in nearly a decade.

The next FOMC meeting is scheduled for December 13-14.