A historic rise in US interest rates later this month is almost certain, Janet Yellen signalled on Wednesday. The chair of the Federal Reserve said that the US economy had “recovered substantially since the Great Recession” and she was “looking forward” to increasing rates, which have been held at near zero since the 2008 financial crisis.
“The economy has come a long way toward the FOMC’s [Federal Open Market Committee] objectives of maximum employment and price stability,” she said in a speech to the Economic Club of Washington. “When the committee begins to normalize the stance of policy, doing so will be a testament, also, to how far our economy has come in recovering from the effects of the financial crisis and the Great Recession. In that sense, it is a day that I expect we all are looking forward to.”
The committee is due to vote on whether to raise rates on 15-16 December. Yellen and other members have previously indicated that a rates raise – the first since 2006 – is likely to come at that meeting. However, she warned that any substantial changes to the global economy could delay the rate rise. Many had expected rates to rise in September, but such a move was nixed by concerns about the faltering Chinese economy.
In some of her most pointed remarks yet, Yellen on Wednesday warned that any further delay to raising rates could be detrimental to the economy. “Were the FOMC to delay the start of policy normalization for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals,” she said. “Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession.
“On balance, economic and financial information received since our October meeting has been consistent with our expectations of continued improvement in the labor market. And, as I have noted, continuing improvement in the labor market helps strengthen confidence that inflation will move back to our 2% objective over the medium term.”
Dennis Lockhart, the president of the Federal Reserve Bank of Atlanta and a voting member of the FOMC, said the case for raising rates was “compelling”. “Absent information that drastically changes the economic picture and outlook, I feel the case for liftoff is compelling,” in said in a speech in Fort Lauderdale, Florida.
“I think the economy is closing in on full employment,” he said. “The trend in wage growth has been weak for some time, but it may be picking up.”
US employers added 271,000 jobs in October, the most of any month so far this year, and the unemployment rate has fallen to 5%. On Wednesday, ADP figures showed private sector employers added 217,000 jobs in November – the most for five months. Government figures for November employment are due to be released on Friday.
Paul Ashworth, chief US economist at thinktank Capital Economics, said that assuming the official payrolls figures show a similar increase, it “would be enough to seal a first interest rate hike at the Fed’s mid-December FOMC meeting”.
