Federal Reserve chair tells House committee that no decision has been made but a rise in rates is still a ‘live possibility’ despite continued low inflation. “At this point, I see the US economy as performing well.” Janet Yellen said…
A December interest rate increase is still on the table, US Federal Reserve chair Janet Yellen said Wednesday during testimony before the House financial services committee.
Asked by New York congresswoman Carolyn Maloney, a Democrat, whether the risk of raising rates in December outweigh the benefits, Yellen said that the committee has made no decision yet but that December rate hike was still a “live possibility”.
Her testimony comes exactly a week after the Federal Reserve chose not to raise interest rates in October.
“At this point, I see the US economy as performing well. Domestic spending has been growing at a solid pace,” Yellen said. She added, however, that trade performance and net exports are soft and that there has been a slowdown in job gains recently. The US economy added 64,000 fewer jobs in September than expected.
“Inflation is, as you mentioned, running considerably below our 2% objective. Nevertheless, the committee judges that an important reason for that is the declines in energy prices and the prices of non-energy imports,” Yellen told Maloney. (Crude oil prices were falling on Wednesday morning after a brief rally early in the week.) “As those matters stabilize, inflation will move back to our 2% target. With this economic backdrop in mind, the committee indicated in our most recent statement that it could be appropriate to adjust rates in our next meeting.”
Yellen went on to add that “no decision has been made on that” and that it will depend on the data assessed by the committee before it meets in December. That includes two more jobs reports, one of which will be released this coming Friday.
“What the committee has been expecting is that the economy will continue to grow at a pace that’s sufficient to generate further improvements in the labor market and to return inflation to our 2% target over the medium term,” said Yellen. “If the incoming information supports that expectation, then our statement indicates that December would be a live possibility, but, importantly, that we have made no decisions about it.”
Yellen added that if the data is there to support a rate hike, such a move would be “a prudent thing to do” because it would allow the Federal Reserve to move at a “gradual and measured pace”.
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