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.

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."

• Would take a 'surprise' to stop December rate hike: Fed official

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 thoughtthere'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 Thursdayat 10 a.m. ET.

"She appears to be fully on board for a December rate hike," BMO'sSal 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 remarkswere 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 shecould credibly work with him now. But she largely brushed off those concerns, and saidshe 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, Yellenagrees 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 saidshe 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 saidthe central bank will take into account decisions by Congress and the administration in implementing its interest-rate policies.