Yellen: Economy Ready for Rate Hike
World Economy

Yellen: Economy Ready for Rate Hike

Federal Reserve Chairwoman Janet Yellen said late Wednesday that the central bank has no “fixed timetable” for raising interest rates but that she believes the economy is ready for a rate hike by the end of the year.
She said during an appearance before the House Financial Services Committee that when the Fed met last week, a majority of her colleagues believed it would be appropriate to raise rates before the end of this year, AP reported.
The Fed boosted its key policy rate in December 2015 to a range of 0.25% to 0.5%. But since then, officials have left the rate unchanged. Yellen told the lawmakers she believed it would make sense to boost the rate again “if things continue on the current path and no significant new risks arise.”
The Fed last week voted 7-3 to keep its key interest rate where it has been all year. But it did send a strong signal that it is prepared to raise rates before the end of the year, with many expecting a move in December.
Yellen said that while inflation is not a threat at the moment, it is possible the economy could begin to overheat with prices rising too quickly, forcing the Fed to accelerate the pace of rate hikes and raising the threat of a recession.
“If we allow the economy to overheat, we could be faced with having to raise interest rates more rapidly than we would want, which could conceivably jeopardize that good state of affairs that we have come close to achieving,” Yellen told lawmakers.
Yellen, was testifying Wednesday on the Fed’s role in regulating the nation’s banking system. In her testimony, Yellen said the health of the financial system has strengthened considerably since the 2008 economic crisis, in part because of tougher regulations passed by Congress in 2010.
She said the Fed wants to make sure the new requirements keep the country’s largest banks from failing and destabilizing the entire financial system while avoiding undue burdens on smaller institutions.
As part of that effort, the Fed has put forward a proposal to ease requirements for annual stress tests for all but the largest institutions. Under the change the Fed is mulling, all banks with more than $50 billion in assets still would have to undergo annual stress tests to see whether they would have a sufficient capital buffer to withstand loan losses in a severe economic downturn.
But a concurrent, more detailed review would be dropped for all banks but those with more than $250 billion in assets.

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