Fed’s Yellen says rate hikes could become appropriate ‘relatively soon’

Fed Chair Janet Yellen said Thursday that an increase in interest rates “could well become appropriate relatively soon” if incoming data provide some further evidence of continued progress toward the FOMC objectives.

In the introductory remarks of its testimony before the Joint Economic Committee of US Congress, Yellen said that economic activity has picked up from the modest pace seen in the first half of this year while  inflation, while still below the Committee's 2 percent objective, has increased somewhat since earlier this year.

“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 said. “Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability.”

The FOMC judged at its meeting 2 weeks ago that near-term risks to the outlook were roughly balanced. "Waiting for further evidence does not reflect a lack of confidence in the economy," she said.