Federal Reserve could hike rate sooner: Janet Yellen

Washington: The Federal Reserve could raise its interest rate sooner than expected as the jobs market improves, Fed Chair Janet Yellen said on Tuesday, adding the Fed was closely watching for risks.

Ms Yellen, in testimony to Congress, said the policy-setting Federal Open Market Committee (FOMC) was closely following developments in the economy to determine the future path of its federal funds rate, which has been near zero since 2008 to support the economy’s recovery from deep recession.

“If the labor market continues to improve more quickly than anticipated by the committee, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned,” Ms Yellen told the Senate Banking Committee.

But, she said, the future path of interest rates “likely would be more accommodative than currently anticipated” if economic performance is disappointing. Markets expect the first Fed rate hike to come in mid-2015. 

She noted that the Fed’s forecast for where the rate would stand at  was a median estimate of about one percent, “a positive but relatively low level and that economy is continuing to make progress.”