Case for US rate hike stronger, Fed chief says

By Ovunc Kutlu

NEW YORK

The Federal Reserve on Friday looked one step closer to raising its benchmark interest rate after encouraging remarks by chair Janet Yellen.

"In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months," she said in a speech Friday in Jackson Hole, Wyoming.

Yellen emphasized that the economy is now closer to the Fed's goals of maximum employment and price stability, hinting a rate hike is likely in the coming months.

She failed, however, to provide any timing as to when the central bank would raise rates.

The US. stock market on Friday appeared to take no heed of any hints on a rate hike, staying in positive territory even after Yellen’s remarks.

The last Fed rate increase came last December, marking the first in almost a decade. Although the bank signaled more rate hikes this year, there has been none so far, as it pointed to risks in the U.S. economy.

Yellen, however, was more positive about labor market conditions, economic growth and the general outlook of the economy in her speech Friday.

"While economic growth has not been rapid, it has been sufficient to generate further improvement in the labor market," she said.

The U.S. added 255,000 jobs in July and 292,000 in June, rising the three-month average to 190,000 from 147,000.

The Commerce Department said Friday that the economy grew at a sluggish 1.1 percent in the second quarter, slightly less than the previously reported 1.2 percent.

But Yellen is confident about economic growth and inflation reaching the bank's target rate.

"Looking ahead, the FOMC [Federal Open Market Committee] expects moderate growth in real gross domestic product, additional strengthening in the labor market, and inflation rising to 2 percent over the next few years," she said.

The Fed's next meeting will be held on Sept. 20-21. The bank also has meetings on November and December.