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Federal Reserve Chairwoman Janet Yellen gave her clearest clue to date that the central bank is ready raise interest rates.
Speaking today before the Economic Club of Washington, Yellen pointed to a stronger economy and an improved labor market as evidence that the nation is ready to move beyond near-zero interest rates.
"I currently judge that U.S. economic growth is likely to be sufficient over the next year or two to result in further improvement in the labor market," Yellen said, according to USA Today coverage of her speech. She added that the Fed was “reasonably confident that inflation" would move up to its annual two percent target over the medium-term.
While Yellen did not specifically promise a rate hike would occur at the next Fed meeting on December 15 and 16, she admitted that delaying a rate hike longer would be deleterious to the economy.
“Were the (Fed) to delay the start of policy normalization for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals,” she said, referring to a five percent unemployment rate and a two percent inflation rate. She also insisted that the continued failure to raise rates “could also encourage excessive risk-taking and thus undermine financial stability.”
Nonetheless, Yellen emphasized that a rate hike was not a question of “if,” but “when.”
“The economy has come a long way,” she added, stating that a rate increase would be a “testament, also, to how far the economy has come in recovering from the effects of the financial crisis and the Great Recession. In that sense, it is a day that I expect we are all looking forward to.”