Yellen: Delaying Rate Hike Much Longer Could Risk Recession

Federal Reserve Chairman Janet Yellen said today that the economy has “recovered substantially” in recent years and hinted that an increase to the federal funds rate could come before year-end while cautioning that a delay could inadvertently lead to another recession.

Yellen pointed to several signs of economic progress — including steadily falling unemployment numbers and increases to the real GDP — that have moved the labor market closer to the Federal Open Market Committee’s goal of maximum employment. She expressed her optimism that economic growth will continue in the months ahead. She added that she also anticipates the inflation rate — which is currently below the FOMC’s target rate of 2 percent — will improve, and warned that waiting too long to raise interest rates could have negative economic consequences.

“Were the FOMC to delay the start of policy normalization for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals,” Yellen said. “Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession.”