Fed Chair Yellen says economic conditions falling into place for December rate

Yellen has said multiple factors – such as rising inflation and declining unemployment – indicate that the USA economy is strong enough to withstand a rate hike.

“I anticipate continued economic growth at a moderate pace that will be sufficient to generate additional increases in employment, further reductions in the remaining margins of labor market slack, and a rise in inflation to our 2% objective”, she added.

Specifically, Yellen mentioned that gains in the labor market had “bolstered” and “strengthened” her confidence that inflation would return to the Fed’s 2 percent target over time.

The federal funds rate, a key short-term benchmark, has been near zero since December 2008 in an attempt to boost economic growth during the Great Recession and its aftermath.

“The US economy has had the training-wheels support of ultra-easing monetary policy, and suddenly they’re being told by their parent – the Fed – it’s time to take them off”, said Shane Oliver, head of investment strategy in Sydney at AMP Capital Investors, which oversees about US$110 billion.

In regard to the Chinese currency, Yellen said that, despite the deprecation in the last summer, the Renminbi “has been strengthening rather substantially relative to many of its trade partners”.

Yellen’s remarks were similar to the ones she delivered on Wednesday to the Economic Club of Washington, and comes just two weeks before the Fed’s Open Market Committee meeting.

When the Fed votes on a rate hike, Yellen said, she will not be concerned if the 10 voting members of the Fed’s policy committee are not in agreement.

The Federal Reserve ventures closer to raising interest rates in a move that could impact the cost of mortgages, vehicle loans, corporate bonds, and a variety of other debts throughout the financial world.

“Economic activity increased at a modest pace in most regions of the country since the previous Beige Book report” in October, said the report, based on information gathered before November 20.

The BEA has also reported strong gains throughout the labor market in terms of total jobs.

There’s a 74% chance the Fed will increase rates at its December 15-16 meeting, futures show. The numbers for November will be released by the department Friday. She points out that 2 million Americans say they want work and are ready to work but they stopped looking for jobs in October because they were so discouraged. However, due to the appreciation of the U.S. dollar, GDP growth has been low; this has further weakened exports and made imports cheaper.

“On balance that’s led and I think it will continue to lead to growth that is somewhat above trend and on a continuing path of labour market improvement”, Yellen said.