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
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.