Nation/World

Fed Chair Janet Yellen says case for rate hike has strengthened

JACKSON HOLE, Wyo. – Federal Reserve Chair Janet Yellen on Friday signaled that the central bank is moving closer to raising its influential interest rate amid sustained improvement in the job market.

In a speech at an economics conference here, she acknowledged that the recovery's momentum remains tepid. Still, the country has added an average of 190,000 jobs a month this summer, and the unemployment rate has remained steady at about 5 percent.

"I believe the case for an increase in the federal funds rate has strengthened in recent months," Yellen told the audience at the annual symposium hosted by the Kansas City Fed, according to prepared remarks.

However, Yellen emphasized that no decisions had been made and that any forecast is inherently uncertain. Over the past year, central bank officials have watched warily as global financial markets swung wildly over fears of a slowdown in China and Britain's decision to leave the European Union. The turbulence overseas, coupled with surprisingly weak readings of the recovery at home, has kept the Fed from raising rates this year despite initially anticipating hiking as many as four times.

Meanwhile, the Fed is wrestling with more existential questions about the economy, including whether the slow growth that has dogged the recovery for the past seven years is here to stay. That would leave the economy more vulnerable to downturns and could limit the ability of policymakers to counteract them.

Yellen said the central bank's own range of projections for its benchmark interest rate is "quite wide." And she argued Friday that the Fed is not out of ammunition should another recession hit. The central bank could begin pumping money into the economy again or promise to keep rates lows – two pillars of its response to the Great Recession.

"The use of such tools could result in even better outcomes for unemployment and inflation on average," Yellen said.

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Yellen also said that the Fed could consider buying assets beyond the government bonds and mortgage-backed securities it purchased to prop up the economy. And she said that economists should be studying proposals for a wholesale shift in strategy, such as raising the Fed's inflation target or setting a goal for broader economic growth. But Yellen cautioned that the central bank was not "actively considering" those changes.

"Even if average rates remain lower than in the past, I believe monetary policy will, under most conditions, be able to respond effectively," she said.

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