From floridarealtors.org
Federal Reserve Chair Janet Yellen signaled the Fed is all but certain to raise interest rates this month for the first time in nearly a decade, saying that gains in the economy and labor market have met the central bank’s goals.
Her comments at the Economic Club of Washington amount to the strongest sign the Fed has provided so far that it will take action at a Dec. 15-16 meeting.
Yet Yellen reiterated it’s the pace of subsequent rate increases that matters. And that may be even slower than Fed policymakers have suggested.
She previously stressed the central bank will bump up rates gently amid lingering obstacles to faster economic growth that are byproducts of the 2008 financial crisis and Great Recession. Its benchmark rate has been near zero since then, even as unemployment has fallen from 10 percent to 5 percent.
This time, Yellen was even more expansive, noting the Fed’s “neutral interest rate” — the level that would neither heat up nor cool down an economy that’s at full employment — is “low by historical standards and is likely to rise only gradually over time.”
Many economists believe the inflation-adjusted neutral rate, which traditionally has been about 4 percent, is now zero.
That means the Fed must move gradually or risk dousing a recovery that’s still modest by some measures. Yellen cited several reasons why such a low rate won’t overheat the economy or spur runaway inflation.
Credit remains tight, many households are still shaving debt after the mid-2000s credit bubble, and productivity and labor force growth have slowed, among other factors, she said. Higher interest rates would modestly raise borrowing costs for consumers and businesses across the economy — from mortgages to corporate bonds — while also nudging up bank savings rates that have been stuck near zero.
Fed policymakers’ most recent forecasts indicate they expect to raise the benchmark rate by about a quarter of a percentage point every other meeting, or roughly a percentage point a year. That would be about half the pace of rate-hike cycles in 1994, 1999 and 2004.