Fed Chair Yellen Says Rates May Rise Next Month

After an uneasy summer with stocks swinging drastically and signs of an uneasy jobs market, the Federal Reserve may finally find its window to raise rates during its December meeting, senior Fed officials said.

Janet Yellen, the head of the Federal Reserve, told the House Financial Services Committee that the economy is “performing well,” on Wednesday, saying that the rates could be raised during the policy meeting in mid-December. This does not mean a final decision has been made, however.

Word of the increased rates made an impression on investors as Treasury securities rose 0.84 percent at trading’s close Wednesday.

This could mean the Fed is looking to tighten financial conditions to prevent an overheating economy and reduce inflation while also trying to determine the best time to end a seven-year stretch of interest rates at nearly zero. The effort was started by previous chairman Ben Bernanke during the height of the financial crisis brought about by uncertain housing loans and risky credit swaps among financial institutions.

Analysts have said the Fed’s moves have contributed to the economic recovery and the job growth. While job and wage growth has been slow or nonexistent at times, the benefits from the Fed’s moves will disappear when the rates go back up, creating an uncertain future of job creation as the nation enters the 2016 presidential election in earnest.

Yellen said the Fed’s move will be determined based upon the economic data that will come out starting Friday, when the Labor Department unveils the October jobs report.

“At this point, I see the U.S. economy as performing well,” Yellen said during her testimony. She noted the domestic spending reports and the reduced volatility in global financial markets, plus the benefits of the economy by raising the federal debt ceiling for the next two years, which would have threatened economic growth. If the economy continues to show strength and stability, Yellen said, “December would be a live possibility” to raise rates.

A few hours later, William Dudley, head of New York’s Federal Reserve Bank  echoed Yellen’s statements. “I fully agree with the chair,” he told reporters in New York. “It is a live possibility, but let’s see what the data shows.”

While raising rates is in the future, Yellen also emphasized that the speed in which rates will go up will be slower than previous times given the weakness of the economic expansion under Obama’s administration.

“I know there’s a great deal of focus on the initial move,” she said. “But markets and the public should be thinking about the entire path of policy rates over time.”

The Fed’s move has been a part of a political tug-of-war between Republicans who say the rates should have been raised long ago, with Republican presidential candidate Donald Trump saying Yellen’s reluctance of raising rates is the bidding of Obama’s intention to delay the onset of “a lot of bad things.”

Democrats, however, have said that keeping the rates low has been helping the economy create more jobs and that the Fed should leave things be until inflation is perceived.

Rep. Brad Sherman (D-California) even invoked God into his argument about why the Fed should wait, saying spring is the proper time of year for things to rise up from the ground.

“If you want to be good with the Almighty, you might want to delay until May,” Sherman said, drawing giggles and looks from other committee members.

Yellen has been looking for a more middling route, trying to avoid the political ramifications and instead looking at a longer-term view of the economy to prevent too much inflation as monetary policy tends to impact at a slow pace. This is even moreso as the economy continues to grow at a sluggish pace, with Fed officials reducing estimates of the ability for the economy to gain steam.


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