Fed's Yellen sees possible December rate rise, gradual hiking path
By Howard Schneider and Jason Lange
WASHINGTON (Reuters) - Federal Reserve Chair Janet Yellen on Wednesday pointed to a possible December interest rate "liftoff" but said rates would rise only slowly from then on to nurture the U.S. economic recovery.
In her first public comments since the Fed's meeting last week Yellen laid out what now appears the base case at the U.S. central bank - that low unemployment, continued growth and faith in a coming return of inflation means the country is ready for higher interest rates.
Her remarks pushed bond yields higher and stocks lower. They also caused investors to reset their expectations of a December rate hike above 60 percent, a sign that markets are finally taking the Fed's language seriously after a period in which U.S. central bankers were frustrated by the gap between their own outlook and market bets about their likely course of action.
"What the committee has been expecting is that the economy will continue to grow at a pace that is sufficient to generate further improvements in the labor market and to return inflation to our 2 percent target over the medium term," Yellen said at a House Financial Services Committee hearing.
"If the incoming information supports that expectation then our statement indicates that December would be a live possibility."
William Dudley, the influential president of the New York Fed and a permanent voter on policy, said later on Wednesday that he would "completely agree" with Yellen. December "is a live possibility, but we'll see what the data shows," he told reporters in New York.
Yellen, Dudley and the other 15 Fed policymakers now have six weeks to analyze new data, debate and decide whether at their Dec. 15-16 meeting to end the ultra-low interest rates set in response to the 2007-2009 economic crisis and recession.
Moving sooner rather than later to begin tightening policy, Yellen said, would allow the Fed to take a gradual approach to further hikes, slow enough to ensure that housing and other key markets are not disrupted by rising rates. Continued...