Yellen plots rate-hike roadmap

February 25 00:02 2015

Federal Reserve Chair Janet Yellen provided Congress an upbeat view of the labor market Tuesday and said policymakers will raise interest rates when they’re “reasonably confident” inflation will pick up toward the Fed’s annual 2% goal. Her remarks set the stage for a possible mid-year rate increase while giving the Fed the flexibility to wait longer if the labor market falters and meager inflation shows no sign of ticking up.janet-yellen-hearing2

In testimony before the Senate banking committee, she echoed the Fed’s last post-meeting statement, which said the Fed “can be patient” as it weighs a hike in interest rates. She reiterated that means rates won’t rise for at least the next two meetings, or until June, at the earliest. But she cautioned that removal of the “patient” wording in an upcoming statement doesn’t mean the Fed “will necessarily increase” rates within two meetings. Rather, she said it will indicate the economy has improved “to the point where it will soon be the case” that a change in interest rates “could be warranted at any meeting.”

The caveat is an attempt to prevent a sell-off in Treasuries and rising yields if the Fed drops the assurance in its March post-meeting statement, says economist Paul Ashworth of Capital Economics. Yellen offered no clear signal on when the Fed will raise its benchmark rate from near zero for the first time since the 2008 financial crisis. But she indicated policymakers could act before unusually low inflation picks up.

“Provided that labor market conditions continue to improve,” the Fed will increase the federal fund rate when it’s “reasonably confident that inflation will move back over the medium term toward our 2% objective,” Yellen said in her semiannual report to Congress.