Yellen Signals Solid Economy Would Spur December Rate Hike

Fed eral Reserve Board Chair Janet Yellen said an improving economy has set the stage for a December interest-rate increase if economic reports continue to assure policy makers that inflation will accelerate over time.

“At this point, I see the U.S. economy as performing well,” Yellen said on Wednesday in testimony before the House Financial Services Committee in Washington.

“Domestic spending has been growing at a solid pace” and if the data continue to point to growth and firmer prices, a December rate hike would be a “live possibility,” she said in response to a question from Representative Carolyn Maloney, a New York Democrat.

Yellen’s testimony drove the yield on two-year U.S. Treasury notes to as high as 0.82 percent. The Standard & Poor’s 500 Index of U.S. stocks was down 0.17 percent at 12:14 p.m.

The Federal Open Market Committee in its October statement said it will consider raising interest rates at its “next meeting,” citing “solid” rates of household spending and business investment.

Liftoff Odds

“There are pretty good odds that the Fed will hike rates in December as long as employment perks back up and the unemployment rate slips further, which is what we are looking for,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “She is trying to keep the Fed’s options open in December.”

No decision has yet been made on the timing of a rate increase, Yellen cautioned.

Yellen appeared before the House Financial Services Committee to testify primarily on the Fed’s supervision and regulation of financial institutions.

“What the committee has been expecting is that the economy will continue to grow at a pace that’s sufficient to generate further improvements to the labor market and to return inflation to our 2 percent target over the medium term,” she said.

U.S. central bankers have held the policy rate near zero since 2008 as they have waited for labor markets to move closer to their goal of full employment.

Jobless Rate

The unemployment rate stood at 5.1 percent in September, slightly above the 4.9 percent rate that officials estimate would satisfy their mandate. The Bureau of Labor Statistics will release the October jobs data Friday.

“I see underutilization of labor resources as having diminished significantly since earlier in the year, although recently we’ve seen some slowdown in the pace of job gains,” Yellen said.

The Fed has missed its 2 percent inflation target for more than three years, and its Oct. 28 statement said they need to be “reasonably confident” that prices will rise toward their goal before raising rates.