(Bloomberg) — Federal Reserve Chair Janet Yellen left little doubt on Friday that the central bank will raise interest rates this month. More importantly, she dropped hints that it might end up having to increase them this year more than planned.
In a speech to The Executives’ Club of Chicago, Yellen singled out the danger of the central bank being too slow in boosting rates.
“We realize that waiting too long to scale back some of our support could potentially require us to raise rates rapidly sometime down the road, which in turn could risk disrupting financial markets and pushing the economy into recession,” she said.
Yellen all but declared that the Federal Open Market Committee would increase rates for the first time this year at its March 14-15 meeting, saying that such a move “would likely be appropriate” if the economy stays on its current track. She also suggested that would not be the last increase this year.
Policy makers penciled in three quarter percentage-point rate increases for 2017, according to the median projection in forecasts released in December.
In an indication that she thinks it’s possible the Fed may have to raise rates more than that, Yellen subtly altered her assessment of the current stance of monetary policy, calling it “moderately accommodative.” That contrasts with the “modestly accommodative” description she used in her Jan. 19 speech in Stanford, California.
“That’s a biggie,” said veteran Fed watcher Lou Crandall, in commenting on the word swap by Yellen. “There’s a clear suggestion the Fed may have to step up the pace of its rate increases,” he added. Crandall is chief economist at Wrightson ICAP LLC in Jersey City, New Jersey.
The small yet significant change in Fed speak suggests Yellen now believes that the current level of interest rates may be providing slightly more support to the economy than she previously thought.
Buttressing that idea: Payrolls are growing well in excess of what Fed officials reckon is sustainable in the long run.
As she did in January, Yellen insisted that the Fed was not behind the curve in raising rates, despite having increased them only twice since the Great Recession ended almost eight years ago.
Yellen said that Europe, Japan and China all looked to be doing better. (Photo: iStock)