Yellen suggests rate hike is coming
Fed chair is upbeat on the economy in speech at bankers’ conference; no timetable set for increase.
WASHINGTON — Federal Reserve Chair Janet Yellen said Friday the case for raising interest rates has strengthened in light of a solid job market and an improved outlook for the U.S. economy and inflation. But she stopped short of offering any timetable.
Yellen sketched a generally upbeat assessment of the economy in a speech to an annual conference of central bankers in Jackson Hole, Wyo. She pointed to steady gains in employment and strength in consumer spending.
She also noted that while inflation is still running below the Fed’s 2 percent target, it’s being depressed mainly by temporary factors.
“In light of the continued solid performance of the labor market and our outlook for economic activit y and inflation,” Yellen said, “I believe the case for an increase (in the F e d ’ s b e n c h - mark bor rowi n g r a t e ) h a s strengthened in recent months.”
S t i l l Ye l l e n declined to hint at whether the Fed might raise rates at its next policy meeting, Sept. 20 and 21, or at its subsequent meetings in early November and mid-December. Instead, she stressed, that the Fed’s rate decisions will depend on whether the freshest economic data continues to confirm its outlook.
“As ever, the economic out- look is uncertain, and so monetary policy is not on a preset course,” she said.
Economists took her remarks to mean that while a rate hike remains possible at the Fed’s September meeting, it isn’t necessarily likely.
“We think most officials will want to see more concrete evidence of a rebound in GDP growth and a rise in inflation towards the 2 percent target, with a December move still appearing the most likely outcome,” said Andrew Hunter, an economist with Capital Economics.
In December, the Fed raised its benchmark rate modestly in response to a brighter economic picture, notably a job market nearing full health. The rate had been kept at a record low near zero since the depths of the 2008 financial crisis.
Some economists have said they think conditions are ripe for the Fed to boost rates next month. Others say they foresee no action until December, after the elections, at the earliest.
Stanley Fischer, the Fed’s vice chairman and a close Yellen ally, said after her speech that in deciding whether to raise rates as soon as September, policymakers will assess the August jobs report next Friday to see whether employment growth maintains its solid pace of the past three months.
“That will probably weigh in our decision, along with other data that may come in,” Fischer said in an interview on CNBC. “We think the evidence is that the economy has strengthened.”
Fischer said it was still possible that the Fed could raise rates t wice before year’s end. But he said that would depend on the strength of forthcoming economic data.
In her speech, Yellen said the Fed still believes that future rate increases, whenever they occur, will be “gradual.”