Yellen says Fed is likely to raise rates this month

Federal Reserve Chairwoman Janet Yellen said Friday that the Fed is likely to raise its benchmark interest rate this month, barring any unpleasant economic surprises.

Yellen’s declaration, in a speech in Chicago, capped an intensification in the Fed’s communication in recent days as officials put investors on notice that a rate increase is coming sooner than had been widely expected.

“At our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” Yellen said, referring to the Fed’s rate-setting panel.

The committee is scheduled to meet in Washington on March 14-15.

Financial markets have taken the Fed’s language in stride, which is likely to reinforce the confidence of Fed officials that they can safely raise rates. The Fed last lifted its benchmark rate in December, to a range of 0.5 percent to 0.75 percent.

Rates remain low by historical standards, supporting economic growth by encouraging borrowing and risk-taking. But Fed officials have increasingly concluded that the economy is nearing the end of its recovery from the 2008 financial crisis, and that maintaining low rates could increase growth to an unsustainable pace.

The unemployment rate, at 4.8 percent in January, is in a range Fed officials regard as healthy, and inflation is rising toward the 2 percent level that the Fed considers optimal.

Stanley Fischer, the Fed’s vice chairman, echoed Yellen in remarks Friday at a conference in New York.

“We’ve seen a lot of substantial change in a relatively short time,” Fischer said at the U.S. Monetary Policy Forum, noting what he described as a marked change in the economic weather since the presidential election on Nov. 8. “There is almost no economic indicator that has come in

badly in the last three months.”

Asked whether Fed officials are engaged in a coordinated campaign to prepare markets for a rate increase later this month, Fischer replied, “If there has been a conscious effort, I’m about to join it.”

Yellen said she expects the Fed to raise rates by the end of the year to a level that would effectively end the central bank’s stimulus campaign — something she said is likely to require three increases, each of 0.25 percentage points. She added that further increases will probably be necessary in coming years to maintain a neutral stance.

“On the whole, the prospects for further moderate economic growth look encouraging, particularly as risks emanating from abroad appear to have receded somewhat,” she said.

Just a few weeks ago, Wall Street analysts were

skeptical that the Fed would raise rates in March. The Fed issued a measured statement after its last policy meeting in early February, and the meeting minutes, published three weeks later, conveyed little sense of urgency.

Now, analysts regard a March increase as highly likely.

Michael Feroli, the chief U.S. economist at JPMorgan Chase, described the shift in Fed language as “remarkably swift and decisive.” Investors put the chances at almost 80 percent in trading on Friday, according to a CME Group analysis of asset prices.

The shift began this week. Lael Brainard, a Fed governor who has been one of the most consistent advocates of raising interest rates slowly, suggested Wednesday that she, too, is ready to lift the benchmark rate.

“We are closing in on full employment, inflation is moving gradually toward our target, foreign growth is on more solid footing, and risks to the outlook are as close to balanced as they have been in some time,” Brainard said at Harvard’s Kennedy School of Government. “Assuming continued progress, it will likely be appropriate soon to remove additional accommodation, continuing on a gradual path.”

Fed officials often bury their latest views on monetary policy at the end of their speeches; Brainard’s remarks came at the beginning, to make sure no one missed the point.

Another Fed governor, Jerome Powell, issued a similarly blunt notice of intent in an interview with CNBC on Thursday.

“I think the case for a rate increase for March has come together, and I think it’s on the table for discussion,” he said.