At their most recent meeting earlier this month, Fed officials left the target range for the benchmark federal funds rate at 0.25 percent to 0.5 percent -- where it’s been since December -- and said the case for raising rates had “continued to strengthen.”
Done Deal
“A rate hike in December is a done deal, barring a significant surprise in the next jobs numbers or in financial markets,” said Jonathan Wright, an economics professor at Johns Hopkins University in Baltimore and a former Fed economist. “But the pace of firming is likely to continue to be glacial because the funds rate will then be within about a percentage point of the FOMC’s estimate of neutral,” he said, referring to the level of rates that neither spurs nor slows the economy.
Yellen said the decision not to raise rates earlier this month didn’t reflect a lack of confidence on the economy.
“I expect economic growth to continue at a moderate pace sufficient to generate some further strengthening in labor market conditions and a return of inflation to the committee’s 2 percent objective over the next couple of years,” she said. “In addition, global economic growth should firm, supported by accommodative monetary policies abroad.”
While the recent pace of jobs gains “cannot continue indefinitely,” Yellen said she still saw room for further strengthening of the labor market.
At 4.9 percent, the U.S. unemployment rate is still slightly above most Fed officials’ estimate for the lowest sustainable level of joblessness, she said. Involuntary part-time employment, she noted, remains elevated.
Yellen saw some signs that a tightening labor market was beginning to produce higher wage gains. Stepped up pay rises should eventually help boost inflation to the Fed’s goal just as temporary forces holding it down -- lower prices for imports and oil -- continue to fade, she said.
Yellen is scheduled to answer questions from lawmakers after delivering her prepared testimony at about 10 a.m.
This article was provided by Bloomberg News.