Yellen says U.S. economy can handle rate increase

Hours after the European Central Bank announced a rate cut and further policy easing, Yellen acknowledged that the Fed’s opposite track has sent the dollar higher, hitting U.S. exports.

“I think the market’s a little bit more focused on the Fed moving on rates and the pace going forward”, analyst Robert Pavlik said.

But she downplayed the short-term risk of recession in the U.S. Asked about a Citigroup report this week that there was a 65 percent chance the U.S. would fall into recession next year, Yellen pushed back.

Though unemployment at 5 percent is at or near the level many policymakers consider to be full employment, Yellen said that high levels of discouraged workers, part-time employment and other job market measures show there is still room for progress.

Raising near-zero interest rates was “a live option”, Yellen added.

“When the Committee begins to normalize the stance of policy, doing so will be a testament…to how far our economy has come”, she said, referring to the Fed’s policy-setting committee. Low US inflation and some remaining slack in US labour markets reinforce their view that will proceed gradually.

Most economists expect pay increases to continue, though the data tends to be volatile and there may not be solid gains in each month’s jobs report. Economists that were surveyed by Bloomberg anticipate that rates will be raised by a quarter percentage point.

When Janet Yellen addressed the Joint Economic Committee of Congress Thursday she gave the same cautionary notes that have become characteristic of her tenure at the helm of the Federal Reserve Board. She reiterated that the pace of subsequent increases was likely to be gradual, meaning that rates for consumer and business borrowers will remain favorable for a while.

A historic rise in USA interest rates later this month is nearly certain, Janet Yellen signalled on Wednesday.

Since unit labor costs are “the biggest input into production” in an economy like ours, Ashworth worries that inflation could rise faster than expected next year and prompt the Fed into a more aggressive policy tightening tempo. According to the beige book released by the Federal Reserve, it was reported that the 12 regional banks reported moderate growth from early October through Mid-November.

Largely repeating recent comments that markets saw as friendly to a December liftoff, Yellen underlined that the decision will still rely on incoming data, including employment numbers due at the end of the week.

Healthcare shares, down 2.1 percent, led the day’s decline in the S&P 500, followed by energy, down 1.8 percent in a second day of sharp losses for the sector and the overall US equity market. At the same time, the Bureau of Economic Analysis sees higher wage gains that could point to rising inflation in 2016, which would embolden the Federal Reserve to increase interest rates.