Economy Watch: Interest Rates Likely Headed for a Hike

Federal Reserve Chair Janet Yellen recently spoke of some positive U.S. economic metrics, suggesting an interest rate increase is a strong possibility in December.
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

Nothing is certain in the tight-mouthed world of central banking, but Federal Reserve Chair Janet Yellen came close on Thursday to suggesting a policy change. Speaking at the Capitol before the Joint Economic Committee of Congress, Yellen ticked off various kinds of positive data about the U.S. economy.

For instance, job gains averaged 180,000 per month from January through October, a somewhat slower pace than last year but still well above the pace necessary to absorb new entrants to the labor force, Yellen said. “The unemployment rate, which stood at 4.9 percent in October, has held relatively steady since the beginning of the year. The stability of the unemployment rate, combined with above-trend job growth, suggests that the U.S. economy has had a bit more ‘room to run’ than anticipated earlier.”

Meanwhile, she added, U.S. economic growth appears to have picked up from its subdued pace earlier this year. After rising at a meager annual rate of just 1 percent in the first half of this year, inflation-adjusted GDP is estimated to have increased nearly 3 percent during third-quarter 2016. Also, “consumer spending has continued to post moderate gains, supported by solid growth in real disposable income, upbeat consumer confidence, low borrowing rates and the ongoing effects of earlier increases in household wealth,” Yellen said.

The upshot of these positives? Borrowing money, including for real estate deals, will likely be a little more expensive in 2017. “At our meeting earlier this month, the committee judged that the case for an increase in the target range had continued to strengthen and that such an increase could well become appropriate relatively soon if incoming data provides some further evidence of continued progress toward the committee’s objectives,” the chair noted. The next FOMC meeting is next month, and the betting money is now on an interest rate increase at that time.