The head of the U.S. central bank says improvements in employment and rising inflation mean an interest rate increase will “likely be appropriate” later this month.
Federal Reserve Chair Janet Yellen told a Chicago audience the change will come if economic data continues to come in as expected.
The Fed raised rates just twice in the past decade after slashing them to record lows to boost economic growth and fight unemployment during the recession.
WATCH: Yellen on Federal Funds Rate, Interest Rates
The Fed’s job is to encourage full employment and stable prices. Yellen says the recovering U.S. economy is gaining 180,000 jobs a month, which is nearly double the number needed to accommodate new entrants to the workforce. At the same time, a key measure of inflation has risen nearly to its target rate of 2 percent, a low level that Fed experts say helps the economy grow.
PNC Bank economist Gus Faucher says inflation has accelerated recently and might move above target. Central banks raise rates to cool economic growth and fend off inflation.
Even if the Fed raises rates soon, they will still be lower than their historic averages. Economist Mark Zandi of Moody’s Analytics says U.S. officials are trying to “normalize” rates, which may mean they go a bit higher later this year. Zandi says the U.S. economy is on “solid ground” and raising rates now makes it less likely that inflation will spike and require more drastic action in the future.