Federal Reserve Chair Janet Yellen may be nearing the point where she raises interest rates, according to the testimony she plans on giving to Congress’s Joint Economic Committee on Thursday.
In the text of her prepared statement, Yellen predicted that an increase in interest rates “could well become appropriate relatively soon if incoming data provide some further evidence of continued progress toward the committee’s objectives.” Assuming the economy continues to create jobs, Yellen believes that the time is right to raise them — and, indeed, that waiting too long could be dangerous.
“Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the committee’s longer-run policy goals,” Yellen warned. “Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability.”
Perhaps to prevent triggering unnecessary anxiety, however, Yellen reassures that “the risk of falling behind the curve in the near future appears limited.”
It is unclear how Yellen plans on running the Federal Reserve once Trump becomes president. Trump’s attitude toward Yellen and the Federal Reserve has had its ups and downs throughout the election: While Trump initially supported the low interest rates, he later accused Yellen of artificially keeping them down to create a “false” economy that would help President Barack Obama and, by extension, Democratic candidate Hillary Clinton. In addition, because Trump is planning an expensive fiscal stimulus plan that includes infrastructure spending and massive tax cuts, some financial analysts speculate that the Federal Reserve will raise interest rates to offset the possibility of inflation.
For right now, though, Yellen seems to be erring on the side of caution.