Fed’s Janet Yellen on December Rate Hike

As of right now, it looks like a December rate hike is in the cards from the Fed. Chair Janet Yellen called the economy ‘strong’ today, which has been key in her reasoning behind the next rate hike. Yellen has been waiting for the US economy to regain its footing before raising the prime interest rate, and has also discussed soft unemployment numbers as a key factor.

Although the jobs numbers are still soft, the market has been rebounding this past month. As we wrote about before, October was the strongest month for stocks in 4 years. That alone could be enough to cause the Fed to move on a rate hike this December, as Yellen herself hinted at.

One thing that Fed Chair Yellen mentioned was moving in a timely fashion to raise rates -- that is not sticking around at 0% through the rest of the year and then having to raise rates all at once.
She is of the opinion that raising rates gradually -- possibly starting this December -- is a much better path than waiting too long and having to raise rates too quickly. Of course, some analysts believe that Yellen’s Fed has already waited too long, and missed their best window for raising interest rates.

When asked directly about when rates will be going up, Yellen replied, "The committee does feel that moving in a timely fashion -- if the data and the outlook justify such a move -- is a prudent thing to do," she said. Many analysts have taken that to mean that a rate hike is looming in December.

The Federal Reserve’s prime interest rate controls how much interest banks have to pay when borrowing from one another. That trickles down to mortgage rates, car loans, savings account yields, and ultimately impacts inflation itself. The Fed is currently keeping inflation low to help jumpstart the economy, but it may allow some more into the system as it raises rates.

A bit of inflation is good, since it tends to raise wages and prices, but too much can be a bad thing. The Fed is tasked with keeping inflation under control among other things. Their monetary policy is one of the cornerstones of the US economy, and by and large they do a good job at controlling interest rates and inflation.

Of course, the Fed has held the prime rate at 0% since this latest economic downturn in 2008. That’s a record low for the Fed, and they’ve acted to keep the economy from locking up due to insufficient capital flow at the highest levels.
Published on Nov 4, 2015
By Aaron Phillips
Aaron Phillips is a financial researcher and journalist based out of Michigan. He regularly writes the IG Daily and IG Weekly columns.

Copyrighted 2016. Content published with author's permission.

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