Federal Reserve Chair Janet Yellen is signaling that it may finally be time to raise interest rates, saying the U.S. economy has recovered substantially since the Great Recession.
Speaking to the Economic Club of Washington, Yellen said Wednesday that the economy has come a long way toward its twin goals of maximum employment and price stability.
She did nothing to quell widespread speculation that the Fed will raise its benchmark interest rate, which has been near zero for 6 1/2 years, during its meeting on Dec. 15-16. Yellen said:
“I anticipate continued economic growth at a moderate pace that will be sufficient to generate additional increases in employment, further reductions in the remaining margins of labor market slack, and a rise in inflation to our 2 percent objective.”
Yellen said the U.S. economy still has not recovered completely. While unemployment fell to 5 percent in October, many people have fallen out of the workforce and aren’t looking for work. They would accept jobs if the job market improved, she said.
She also said U.S. exports have been down this year, because of the global economic downturn.
But Yellen said she remains confident that gradual growth will continue and that the economic problems overseas are temporary.
She also said she believes inflation will approach the Fed’s target rate of 2 percent. Yellen noted that U.S. labor compensation is finally beginning to firm up:
“We have seen a welcome pickup in the growth rate of average hourly earnings for all employees and of compensation per hour in the business sector.
“While it is too soon to conclude whether these more rapid rates of increase will continue, a sustained pickup would likely signal a diminution of labor market slack.”
Yellen cautioned that no decision has been made about rates, and that the consensus about the economy could change. A lot will depend on the November unemployment report, which will be released Friday.