Federal Reserve Chairwoman Janet Yellen told a Senate committee Tuesday that “the economy is making progress, and eventually, if we continue, the day will come when I think it will be appropriate to raise the fed fund rates."
But after delivering her semiannual monetary policy report, Ms. Yellen told members of the Senate Banking, Housing and Urban Affairs Committee that “even when we get back on track, I think the (economic) headwinds will continue.”
While Fed officials plan to end the bond-buying program in October, “decisions about the path of the federal funds rate remain dependent on our assessment of incoming information,” Ms. Yellen said. A faster improvement in the labor market could bring a higher federal funds rate sooner, but “if economic performance is disappointing, then the future path of interest rates likely would be more accommodative than currently anticipated,” she said.
As a sustained period of low interest rates causes a reach for yield, Federal Reserve officials are closely watching an increase in leveraged lending and corporate debt markets.
“I think we're seeing a deterioration in lending standards,” Ms. Yellen said, adding the board is conducting stress testing of how financial institutions are managing interest rate risk.