Fed chief Janet Yellen bullish on interest rate rise

Janet Yellen, chairwoman of the Federal Reserve, said the US economy was performing well and that Fed rate-setters might consider raising rates at their meeting next month.

The “downside risks” to the US economy from global economic and financial developments had diminished since September, Ms Yellen said in a congressional hearing.

The Fed chairwoman added that spare capacity in the jobs market had fallen “significantly” even if there had been a recent slowdown in the rate of job gains. In light of this, the Fed’s December 15-16th meeting would be a “live possibility” for an increase in rates.

Her bullish remarks pushed the dollar higher and lifted short-term yields, adding to gains following robust services data from the Institute for Supply Management.

Last month, investors were wrongfooted by the central bank’s most recent policy meeting, as it signalled a rate rise might be on the table in December after overseas threats to the US had diminished. The Fed, which has not lifted rates since 2006, has been discussing tightening policy all year.

Appropriate action

At its October meeting, the

Federal Open Market Committee

indicated it “could be appropriate to adjust rates in our next meeting”, she told the house financial services committee.

“No decision at all has been made on that,” Ms Yellen added. The vote would depend on the committee’s assessment of the economic outlook at the time, informed by incoming data over the coming weeks.

One of the key numbers will be labour market indicators, with payrolls data due tomorrow morning.

Ms Yellen insisted the Fed was “very aware” a sharp rise in mortgage rates could have a negative effect on housing. However, she added: “We do have a recovering economy where employment is going up, income is going up” and individuals were in a better position to form households. Ms Yellen insisted increases were going to be at a “gradual and measured pace”.

One congressman contemplating possible backsliding in the economy asked Ms Yellen if she could rule out the Fed ever resorting to negative interest rates. She said she did not see any need for them but noted that the Fed did not make a habit of ruling out policy options.

Ms Yellen also faced hostile questioning on bank regulation from Republican lawmakers, who accused the central bank of lacking transparency.

Lack of transparency

Jeb Hensarling

, chair of the House financial services committee, said: “The Fed must not be allowed to shield its vast regulatory activities from the American people and congressional oversight by improperly cloaking them behind its traditional monetary policy independence.” – Copyright The Financial Times Limited 2015