Two Fed officials say rate hike likely next month
There is a possibility of an interest rate hike next month, according to two senior officials of the Federal Reserve.
Speaking before the House Financial Services Committee during a hearing on financial regulation, Fed Chairperson Janet Yellen said the economy had been growing at a pretty good clip, an indication it might be time to raise short-term interest rates.
Yellen pointed to strong domestic spending as well as low unemployment as among signs the economy was doing well. "At the moment what we see is a domestic economy that is pretty strong and growing at a solid pace, offset by some weakening spilling over to us from the global economy," she told the committee.
"On balance, as we said, we still see the risks to economic growth and the labor market as balanced."
With more and more people finding jobs, inflation is expected to rise, hence the need to tighten rates.
But while the economy is on track, Yellen said Fed officials still needed to monitor developments.
"What the committee has been expecting is that the economy will continue to grow at a pace that is sufficient to generate further improvements in the labor market and to return inflation to our 2% target over the medium term, and if the incoming information supports that expectation then our statement indicates that December would be a live possibility."
William Dudley, president of the Federal Reserve Bank of New York, echoed Yellen's statement, telling reporters that a December rate hike was indeed a "live possibility."
Yellen said raising rates sooner than later would enable the Fed to implement further rate hikes at a gradual pace. This is to avoid disrupting the housing and other key markets.
"Moving in a timely fashion - if the data and the outlook justify such a move - is a prudent thing to do because we will be able to move in a more gradual and measured pace," she said.
In September, when the Fed decided to keep rates steady, Yellen warned that delaying a rate hike could be bad for the economy, as it would cause the Fed to raise rates more quickly.
Yellen, Dudley, and 15 other Fed policymakers will meet again on Dec. 15-16 to decide whether to raise interest rates, which have been near zero since December 2008. That means they have less than six weeks left to analyze incoming economic data, including the October jobs report.