Absent serious negative economic news in the next few weeks, it seems ever more likely that the Federal Reserve will raise its short-term interest rates at its December 13-24 meeting.
Fed Chairwoman Janet Yellen told members of the congressional Joint Economic Committee Thursday that “The U.S. economy appears to have picked up from its subdued pace earlier this year.” Yellen has been a “dove” regarding rates during most of her tenure at the Fed, seeking to find a balance between unemployment and inflation. But she was definitely a “hawk” Thursday.
Although there are many weak points—and still a lot of pain for Americans who lost their jobs, their homes, and their savings, or suffered other financial setbacks during the Great Recession—various measures of the labor market, wage growth, retail sales, and gross domestic product are showing signs of better health than they have during much of the low-growth recovery from the recession over the past seven years. Even housing, a major driver of the economic which had been more or less flat for the past year, took off in September and made a big leap in October, with both housing starts and single-family permits reaching new post-recession highs.
Growth in GDP, that flawed but closely observed overall measure of the economy, was quite weak in the first two quarters of 2016, but in the third quarter first reports estimate that it grew 2.9 percent on an annual basis, the best it has done since the third quarter of 2014. That figure is subject to revisions this month and next and, as with other economic measures, the trend is what matters. On that score, most experts see the fourth quarter positively. For example, the Atlanta Fed has been raising its estimates of fourth quarter GDP for weeks, and now puts it at 3.3 percent.
Accompanying these improvements have been the first signs that the nation’s very low inflation may be ticking up toward the Fed’s 2 percent goal. That’s what has had the Fed governors talking—three aggressively, four cautiously—that a rate hike may soon be in the offing. The current rate is 0.25 percent. At the committee hearing:
“The evidence we’ve seen since we met in November is consistent with our expectation of strengthening growth and an improving labor market,” Ms. Yellen said. “I do think the economy is making very good progress toward our goals.”
A rate increase, she said, “could well become appropriate relatively soon.”
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