Yellen gives Congress upbeat view of U.S. economy

Fed moves towards interest rate hike

U.S. Federal Reserve Chair Janet Yellen addresses the Economic Club of Washington in Washington December 2, 2015. REUTERS/Joshua Roberts

WASHINGTON (Reuters) – Federal Reserve Chair Janet Yellen opened a Congressional committee hearing on the U.S. economy today with an upbeat assessment of where the country stands as the Fed marches towards its first interest rate hike in a decade.

Yellen’s prepared testimony to Congress’ Joint Economic Committee largely repeated the case she laid out in a high-profile speech on Wednesday: unemployment is low, growth continues at a modest pace, and she is confident inflation will return to the Fed’s target over time.

U.S. Federal Reserve Chair Janet Yellen addresses the Economic Club of Washington in Washington December 2, 2015.  REUTERS/Joshua Roberts
U.S. Federal Reserve Chair Janet Yellen addresses the Economic Club of Washington on Wednesday. REUTERS/Joshua Roberts

Though she did not refer to the possibility of a rate hike when the Fed next holds a policy meeting on Dec. 15-16, she said the current outlook and the flow of data since the central bank’s last meeting in October are “consistent” with the rate hike criteria spelled out by U.S. policymakers.

“I currently judge that U.S. economic growth is likely to be sufficient over the next year or two to result in further improvement in the labor market,” Yellen told lawmakers. “Ongoing gains in the labor market, coupled with my judgment that longer-term inflation expectations remain reasonably well anchored, serve to bolster my confidence in a return of inflation to 2 percent.”

Growth adequate to spur continued job creation and confidence in a return of inflation are the benchmarks the Fed set in its policy statement for an initial “liftoff” of interest rates.

The Fed’s first rate hike, expected to be 25 basis points, will start what is expected to be a slow cycle of policy tightening that may see rates remain below normal levels still for years to come.

Yellen noted that one reason not to delay a rate hike too much longer is to avoid the need for a more abrupt sequence of increases that could be more disruptive to the economy than the gradual rate path policymakers say they prefer.

The Fed’s job is already challenging, given the moves by other major central banks to continue easing financial conditions – a divergence that could pose a drag on U.S. growth by pressing up the value of the dollar beyond its current high level.

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