Economy Watch: Fed Chair Says Rates Will Go Up (Eventually)

Speaking before Congress, Janet Yellen said it would be "unwise" to wait too long to raise interest rates, but didn't suggest any timeline for the next rate hike.
Janet Yellen, Chair of the Board of Governors of the Federal Reserve System
Janet Yellen, Chair of the Board of Governors of the Federal Reserve System

It would be “unwise” to delay interest rate increases too long, said Federal Reserve Chair Janet Yellen, speaking before the Committee on Banking, Housing, and Urban Affairs of the U.S. Senate on Tuesday. She didn’t say there’s going to be a move on rates next month—the next opportunity for the Fed—but that delaying would mean more rapid rate hikes down the road, which would be more disruptive.

She cited the expectation for the labor market to continue strengthening and the U.S. economy reaching the FOMC’s goal of 2 percent inflation as reasons for the rate hike in December as well as factors that could support further hikes. She said the FOMC “expects the evolution of the economy to warrant further gradual increases in the federal funds rate to achieve and maintain its employment and inflation objectives.”

However, she noted that decisions about future rate hikes are uncertain due to the unknown about the new administration’s policy decisions. Regarding the new administration, she said, “it is too early to know what policy changes will be put in place or how their economic effects will unfold.”

“While it is not my intention to opine on specific tax or spending proposals, I would point to the importance of improving the pace of longer-run economic growth and raising American living standards with policies aimed at improving productivity,” she said. “I would also hope that fiscal policy changes will be consistent with putting U.S. fiscal accounts on a sustainable trajectory.”