Federal Reserve Chair Janet Yellen and New York Fed President William Dudley both said the central bank could boost interest rates as soon as next month, while Fed Vice Chairman Stanley Fischer voiced confidence that inflation isn’t too far below the central bank’s goal.
“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. If economic data continue to point to growth and firmer prices, a December rate hike would be a “live possibility,” she said.
Speaking in New York hours later, Dudley said he agreed with the chair, but “let’s see what the data shows.” Fischer didn’t comment on the timing of liftoff during a speech Wednesday evening in Washington, but said that price pressures will move toward the Fed’s target.
The Federal Open Market Committee said in its October statement that it will consider raising rates at its “next meeting,” citing “solid” rates of household spending and business investment. The comments from Yellen, Dudley and Fischer, who are considered the three most influential members of the committee, reinforced the idea that next month is in the crosshairs for an increase if economic progress holds up.
“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,” Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said after Yellen’s remarks. “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. The Fed chair appeared before the committee to testify primarily on the Fed’s supervision and regulation of financial institutions.
“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.
Markets interpreted Yellen’s remarks as a sign that a rate hike in December is more likely. Investors have raised to almost 60 percent the probability of a rate increase by policy makers’ December meeting, according to pricing in the federal funds futures market. That compares to 33 percent a month ago, assuming the effective funds rate average is 0.375 percent after liftoff.
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.