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Yellen Implies Gradual Rate Rise

Yellen Implies Gradual Rate RiseYellen Implies Gradual Rate Rise

Federal Reserve Chair Janet Yellen told Congress Thursday that economic conditions appear to be improving enough for policymakers to raise interest rates when they meet in two weeks—as long as there are no major shocks that undermine confidence.

Yellen said that even after the first rate hike, the Fed expects future rate increases will be at a gradual pace that will keep borrowing costs low for consumers and businesses, NBCNews reported.

In testimony before the Joint Economic Committee, Yellen warned that waiting an extended period of time to start raising rates would carry risks.

“Were the Federal Open Market Committee to delay the start ... for too long,” she said, “we would likely end up having to tighten policy relatively abruptly to keep the economy from overshooting” the Fed’s goals for unemployment and inflation.

“Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into a recession.”

Yellen also cited concerns by Fed critics that keeping rates exceptionally low for too long “could also encourage excessive risk taking and thus undermine financial stability.”

Fed policymakers meet on Dec. 15-16. The Fed’s key short-term rate has been at a record low near zero for the past seven years.

Many private economists are forecasting the first rate hike by the FOMC, the Fed’s policy panel, will be a modest quarter-point move, followed by four more quarter-point moves over the next year.

Financialtribune.com