Yellen says US economy can handle rate increase

Janet Yellen Image copyright AP

US Federal Reserve chairwoman Janet Yellen has told Congress that the economy is reaching a point where it can handle an interest rate rise.

She said that raising interest rates would show "how far our economy has come in recovering from the effects of the financial crisis".

Her remarks come after a string of data indicated a strengthening US economy.

Many investors are confident the Fed will raise rates at its next meeting on 15 and 16 December.

Wall Street stocks dipped following the remarks.

Manufacturing data released during her testimony showed factory orders in October rose after two months of decline. New orders were up 1.5%.

Ms Yellen recognised that the slowing global economy and a stronger dollar had had an impact on the US, but said consumer and business spending along with housing investment was still strong.

On Wednesday, she told a group of economists that she expected the US economy to continue to experience steady growth.

The Fed has kept its short-term benchmark interest rate near zero since 2006.

Job report

The central bank will be paying close attention to Friday's jobs report. The bank has previously said it is watching the labour market and inflation rate closely to determine when to make its increase.

"Ongoing gains in the labour market, coupled with my judgement that longer-term inflation expectations remain reasonably well anchored, serve to bolster my confidence in a return of inflation to 2%," Ms Yellen said.

Chair Yellen said a rate of 100,000 new jobs per month would be enough to sustain the labour market. She also indicated that she expected this growth to help raise wages which have been mostly stagnant since the financial crisis.

"I would expect to see some upward pressure on wages - I think we've seen some welcome hints," she said.

Impact of global terrorism

Follow Wednesday's mass shooting in California, Ms Yellen was asked about the impact of these events and global terrorism on the US economy.

She said that the central bank had not seen any impact from the recent mass shootings or terrorist attacks, but that "it does have the potential to have a significant economic effect," she said.

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