Yellen sees December rate hike possible as U.S. economy performs well

U.S. Federal Reserve Chair Janet Yellen said Wednesday that the central bank may start raising short-term interest rates at its December policy meeting as the U.S. economy is "performing well."

The Fed expects "the economy will continue to grow at a pace that's sufficient to generate further improvements in the labor market and to return inflation to our 2 percent target over the medium term," Yellen tesitified before the House Financial Services Committee on financial regulation.

"If the incoming information supports that expectation, then our statement indicates that December would be a live possibility," Yellen said, referring to its next policy meeting scheduled for Dec. 15-16. "But importantly, we have made no decision about it."

Yellen said the decision on hiking interest rates in December will depend on the Fed's policy arm the Federal Open Market Committee (FOMC)'s assessment of the economic outlook at that time and "that assessment will be informed by all of the data that we received between now and then."

The Fed chief expressed optimism that the U.S. economy will be on track to meet the central bank's inflation and employment goals, saying that "at this point I see the U.S. economy as performing well."

"Domestic spending has been growing at a solid pace" and "some of the downside risks had diminished" with regard to global economic and financial developments, Yellen added.

Referring to recent remarks on low inflation by Fed governor Lael Brainard, who takes a waiting stance in deciding whether to raise interest rates, Yellen said it would be based on an expectation that "with an improving labor market and transitory factors fading inflation will move up to 2 percent" if the central bank decides to move in December.

"If we were to move, we would need to verify over time that expectation was being realized, and if not, to just adjust policy appropriately," she said.

Yellen emphasized markets should focus more on "the entire path of policy rates over time" than the timing of the initial interest rate hike. "The committee's expectation is that will be a very gradual path and of course will depend on the actual performance of the economy."

Several other top Fed officials, including Vice Chair Stanley Fischer and Federal Reserve Bank of New York President William Dudley, have also signaled that it will be appropriate to raise interest rate this year as the job market continues to improve.

The Fed has kept its benchmark short-term interest rates near zero since December 2008. In its September meeting, the Fed held off the first rates hike off their historic lows citing the global economic slowdown. Enditem