Federal Reserve Chair Janet Yellen told Congress Thursday that economic conditions are falling into place for policymakers to raise interest rates when they meet in two weeks -- as long as there are no major shocks that undermine confidence.
Yellen said that even after the first increase, rates will still be at very low levels, which should encourage more borrowing by consumers and businesses.
In testimony before the Joint Economic Committee, Yellen said further delays in a Fed rate hike could force the central bank to tighten credit too quickly later. Such an abrupt move could push the economy into a recession.
Fed policymakers meet on Dec. 15-16. The Fed's key short-term rate has been at a record low near zero for the past seven years.
Many private economists are forecasting the first rate hike by the Federal Open Market Committee, the Fed's policy panel, will be a modest quarter-point move, which will be followed by four more quarter-point moves over the next year.
"Between today and the next FOMC meeting, we will receive additional data that bear on the economic outlook. These data include a range of indicators regarding the labor market, inflation and economic activity," Yellen told the JEC. "When my colleagues and I meet, we will assess all of the available data and their implications for the economic outlook in making our decision."
The Labor Department will release its November employment report on Friday. Analysts believe this will be the key report in determining whether the Fed boosts rates this month.
The Fed has left its target for the federal funds rate, the interest that banks charge on overnight loans, near zero since December 2008 as it used ultra-low borrowing costs as a way to stimulate economic activity and fight the worst recession since the Great Depression of the 1930s. The Fed has not raise the funds rate since June 2006.
Yellen said that the Fed currently anticipates that even after further improvements in the labor market and inflation, economic conditions are likely to warrant lower rates than normal "for some time."
Yellen said that a Fed move to start raising rates will be a sign of "how far our economy has come in recovering from the effects of the financial crisis and the Great Recession. In that sense, it is a day that I expect we all are looking forward to."
Yellen spoke shortly after the European Central Bank announced that it was cutting a key interest rate and extending its stimulus program to enhance efforts to bolster the 19 European countries that use the euro currency. This action disappointed investors, who had been looking for stronger moves.