Washington—United States Federal Reserve (the Fed) Chairman Janet Yellen said that an interest rate hike in December is a “live possibility” if the economy stays on track.
Yellen described the US economy as “performing well” right now, with solid growth in domestic spending. At their meeting last week, policymakers believed that the threat of global headwinds had ebbed, Yellen said.
At its December 15 and 16 meeting, the Fed will consider raising a key interest rate from a record-low near zero if the economy continues to grow at a strong enough pace to keep adding jobs and push annual inflation toward the Fed’s 2-percent target, Yellen said.
Yellen stressed that no decision has been made yet and a move in December will depend on how the economy fares between now and then. She reiterated that when the Fed does start raising rates, it will do so gradually.
She said she understood that “there is a great deal of focus” on the timing of the Fed’s first rate hike in nearly a decade. But she said the more important focus should be on the pace of rate hikes after the Fed decides to move.
“The committee’s expectation is that it will be a very gradual path and…will depend very much on the actual performance of the economy,” she said.
Yellen’s comments came in response to questions during an appearance before the House Financial Services Committee last Wednesday (last Thursday in Manila). William Dudley, president of the Fed’s New York regional bank, said at a separate appearance later in the day that he was in full agreement that December was a “live possibility and we will see what the data shows.”
The main topic of the committee hearing was banking supervision and regulation. On that subject, Yellen said the country’s largest financial institutions are still falling short of managing the types of risks that led to the 2008 financial crisis.
While Yellen acknowledged progress in making the financial system more resilient to shocks, she expressed concerns about the “substantial compliance and risk-management issues” at the institutions.
“Compliance breakdowns in recent years have undermined confidence in the (banks’) risk management and controls, and could have implications for financial stability, given the firms’ size, complexity and interconnectedness,” Yellen said.
The group includes the eight largest banks in the US, a number of major foreign banks operating in the US and several large institutions that have been judged systemically important.
Republicans on the House committee have been critical of many of the regulatory changes the Fed is undertaking to implement the 2010 Dodd-Frank Act. AP