Yellen Says 'Looking Forward' to Day of Rate Hike

Before you go, we thought you'd like these...
Before you go close icon
Federal Reserve Yellen
Richard Drew/APFederal Reserve Chair Janet Yellen's speech Wednesday to the Economic Club of Washington appears on a television screen on the floor of the New York Stock Exchange.
By Jason Lange and Howard Schneider

WASHINGTON -- Federal Reserve Chair Janet Yellen said Wednesday she was "looking forward" to a U.S. interest rate rise that will be seen as a testament to the economy's recovery from recession.

Fed policymakers are widely seen raising interest rates for the first time in almost a decade at their next meeting on Dec. 15-16, but they continue to parse data and trends carefully given the uneven nature of the U.S. recovery.

In her remarks to the Economic Club of Washington, Yellen expressed confidence in the U.S. economy, saying job growth through October suggested the labor market was healing even if not yet at full strength.

Yellen also reaffirmed her view that the drag on U.S. economic growth and inflation from weakness in the global economy and falling commodity prices would moderate next year. U.S. consumer spending was "particularly solid," she noted.

"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. "In that sense, it is a day that I expect we all are looking forward to."

Investors are already betting the Fed will lift its benchmark federal funds rate this month from the zero to 0.25 percent range where it has been held since 2008. Economists also see a strong chance of a December rate rise.

The U.S. dollar strengthened Wednesday and stocks fell on Wall Street, after Yellen's comments.

"I was a little surprised she sounded as hawkish as she did given we're two days away from the non-farm payrolls report and a couple of weeks away from the Fed FOMC meeting," said Michael O'Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.

Yellen also is due to testify on the economic outlook before a joint Congressional committee on Thursday.

"Yellen gave a fairly positive assessment of the economy that would be consistent with the Fed raising rates at their December meeting," said Vassili Serebriakov, currency strategist at BNP Paribas in New York.

As in previous speeches and public appearances, Yellen said the timing of the first U.S. rate increase in nearly a decade was not as important as the path of subsequent rises which policymakers expect will be gradual. Waiting too long to raise rates could deal an accidental blow to the economy, she warned.

"An abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession," she said.

Responding to a question after her speech, she said the Fed would weigh incoming data to set the pace of hikes and that policymakers do not expect a mechanical path of rate moves. The Fed schedules policy reviews eight times a year and in the past it has often raised rates at successive meetings.

"This may turn out to be a very different cycle than past cycles," she said.

Beige Book Sees Ongoing Expansion

In its Beige Book report of anecdotal information on business activity collected from contacts nationwide, published on Wednesday, the Fed said U.S. economic activity continued to expand at a modest pace in most regions from early-October through mid-November.

The Fed said consumer spending increased in nearly all districts. Manufacturing activity remained mixed, the Fed added, with exports continuing to fall as a result of the strong U.S. dollar, low commodity prices and weak global demand.

Lockhart and Williams Agree

Earlier Wednesday, Atlanta Fed President Dennis Lockhart said U.S. economic data would have to "drastically" alter the nation's outlook over the next two weeks to change the "compelling" case for an initial hike in interest rates when the Federal Reserve next meets on Dec. 15-16.

The Labor Department's monthly jobs report Friday will be a key data point, with economists expecting that as many as 200,000 additional jobs were created in November.

In a speech Wednesday in California, San Francisco Fed President John Williams agreed that the Federal Reserve should leave near-zero interest rates behind "sooner than later."

A Reuters poll of over 80 economists taken after the October jobs data were published found a median 70 percent probability the Fed will raise rates on Dec 16. That is up from 55 percent in a poll taken the month before, although Reuters polls have been consistently predicting a December rate rise since the Fed took a pass in September

-Ann Saphir in San Francisco and Samuel Forgione in New York contributed reporting.

9 Numbers That'll Tell You How the Economy's Really Doing
See Gallery
Yellen Says 'Looking Forward' to Day of Rate Hike
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
Read Full Story

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

People are Reading