Yellen Sees Hike ‘Relatively Soon’ and Plans to Serve Full Term

Federal Reserve Chair Janet Yellen said the U.S. central bank is close to lifting interest rates as the economy continues to strengthen, and signaled her intention to remain at the helm until her term ends in January 2018.

A rate hike “could well become appropriate relatively soon if incoming data provide some further evidence of continued progress toward the committee’s objectives,” Yellen said in the text of testimony she delivered Thursday in Washington before Congress’s Joint Economic Committee.

Yellen reiterated the expectation of Fed officials that future rate increases will be “gradual.” Bond prices have fallen and stocks have risen as investors anticipate that President-elect Donald Trump’s proposals to cut taxes and boost infrastructure and defense spending will lead to faster inflation and stronger growth.

Yellen’s remarks will serve to cement expectations, barring a significant negative shock, for an increase in interest rates when the Federal Open Market Committee gathers in Washington Dec. 13-14. Pricing in federal funds futures contracts already imply a greater than 95 percent chance of a quarter-point hike.

Asked by lawmakers about the impact of the presidential election on Fed policies, Yellen said the economy is still making progress toward the central bank’s goals, and that it’s up to Congress and the administration to weigh the costs and benefits of fiscal policies. She said she plans to serve out her full term as Fed chair, laying to rest speculation she would resign after Trump criticized her policies during his successful campaign for president.

“I was confirmed by the Senate to a four-year term, which ends at the end of January of 2018, and it is fully my intention to serve out that term,” she said.

Risks of Delay

The Fed chair warned of the risks attached to waiting too long before raising rates.

“Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the committee’s longer-run policy goals,” she said. “Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability.”

She suggested the danger of that happening soon was low because current policy is only “moderately accommodative.”