There Might Be A Rate Hike In December After All

According to Fed Chair Janet Yellen the improving US economy has prepared the stage for an interest rate hike in December if economic reports assure policy makers that inflation will accelerate over time.

“At this point, I see the U.S. economy as performing well,” Yellen said on Wednesday in testimony before the House Financial Services Committee in Washington.

“Domestic spending has been growing at a solid pace” and if the data continue to point to growth and firmer prices, a December rate hike would be a “live possibility,” she said in response to a question from Representative Carolyn Maloney, a New York Democrat.

The Federal Open Market Committee in its October statement said it will consider raising interest rates at its “next meeting,” citing “solid” rates of household spending and business investment.

“There are pretty good odds that the Fed will hike rates in December as long as employment perks back up and the unemployment rate slips further, which is what we are looking for,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “She is trying to keep the Fed’s options open in December.”

No decision has yet been made on the timing of a rate increase, Yellen cautioned.

“What the committee has been expecting is that the economy will continue to grow at a pace that’s sufficient to generate further improvements to the labor market and to return inflation to our 2 percent target over the medium term,” she said.

U.S.central bankers have held the policy rate near zero since 2008 as they have waited for labor markets to move closer to their goal of full employment.