Fed’s Yellen: Brace Yourselves, a Rate Hike Is Coming

You heard it from the Federal Reserve Chair herself: interest rates will soon go up.

In prepared testimony to the House Financial Services Committee on Wednesday, Federal Reserve Chair Janet Yellen will say that as the U.S. economy continues to improve, “conditions likely would make it appropriate at some point this year to raise the federal funds rate target.”

Appropriate or not, there is no guarantee rates will rise this year, and it may take until 2016 for it to happen. If and when rates go up, it will be their first rise in nearly 10 years.

The increases would be gradual, coming as a result of overall economic improvement and the falling unemployment rate.

“The economy has made further progress toward the Federal Reserve’s objective of maximum employment,” Yellen will say, adding that the unemployment rate of 5.3% is “slightly below its level at the end of last year.” And there’s more good news from Yellen: “Other measures of job market health are also trending in the right direction, with noticeable declines over the past year in the number of people suffering long-term unemployment and in the numbers working part time who would prefer full-time employment.”

Yellen’s outlook won’t be all roses. Separate from her prediction of a federal rate hike, Yellen will say there are still “uncertainties in the economic outlook. Foreign developments, in particular, pose some risks to U.S. growth.” She will call out the current situations in Greece and China as examples of such uncertainties.