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Fed rate hike increasingly likely in December, Janet Yellen hints

The case in favour of hiking interest rates continues to gather steam, the chair of the U.S. central bank told lawmakers Thursday.

Prepared remarks make no mention of President Trump but Yellen likely to be asked about it at 10 am

Federal Reserve Chairman Janet Yellen raised the likelihood of a rate hike with her comments on Thursday. (Michael Dwyer/Associated Press)

The case in favour of hiking interest rates continues to gather steam, the chair of the U.S. central bank told lawmakers Thursday.

Janet Yellen told a congressional committee that since the U.S. job market and other economic indicators continue to improve, an increase in the Federal Reserve`s benchmark interest rate "could well become appropriate relatively soon."

That's Fed-speak for saying it's a near lock to raise rates when it holds a two-day meeting beginning on December 13. Economists who survey the Fed already thought there's a 94 per cent chance it would do so. And that was before Yellen's remarks were released two hours ahead of her congressional appearance on Thursday at 10 a.m. ET.

"She appears to be fully on board for a December rate hike," BMO's Sal Guatieri said in a note.

Two other data points came out early Thursday that are in keeping with the theme of an improving U.S. economy that's ready to stand on its own two feet. U.S. home construction jumped by the highest amount in 34 years, and applications for jobless benefits have fallen to their lowest level in 43 years.

Trump impact

Yellen's comments in her prepared remarks were focused squarely on interest rates, but the question and answer portion of the day raised the elephant in the room: the election of Donald Trump.

The president-elect made many comments critical of Yellen and the Fed on the campaign trail, raising questions as to whether she could credibly work with him now. But she largely brushed off those concerns, and said she is fully committed to finishing out her term, which ends in early 2018.

She said she could not imagine any circumstances that would cause her to leave early.

On the subject of the market reaction to Trump, Yellen agrees that there had been significant moves in the markets since the election of Republican Donald Trump as president, including a rise in long-term bond yields. She said she interprets that as an expectation among investors that the federal government's deficit could increase based on Trump's budget and tax plans.

Yellen said the Fed does not know "what is going to happen" when Trump and a new Congress take office next year. But she said the central bank will take into account decisions by Congress and the administration in implementing its interest-rate policies.

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