GRAND TETON NATIONAL PARK, Wyo. — Janet Yellen, the Federal Reserve chairwoman, said on Friday the Fed remains on course to raise its benchmark interest rate in the coming months as the economy keeps chugging along.
“I believe the case for an increase in the federal funds rate has strengthened in recent months,” Ms. Yellen said. She cited “the continued solid performance of the labor market and our outlook for economic activity and inflation.”
Ms. Yellen’s remarks signaled the Fed will consider raising rates at its next meeting, in mid-September, but most analysts think the central bank is unlikely to have the confidence to act before its final meeting of the year, in December.
Ms. Yellen made the comments in the prepared text of a speech she is scheduled to deliver on Friday at an annual policy conference in the shadow of the Grand Tetons. It follows similar remarks by other Fed officials in recent days that seem aimed at jarring the complacency of investors betting the Fed will continue to procrastinate.
The Fed raised interest rates in December for the first time since the financial crisis, and predicted four more rate increases this year. Instead it has kept its benchmark rate in a range between 0.25 percent and 0.5 percent. Low rates encourage borrowing and risk-taking, which can bolster economic growth. Raising rates will gradually reduce that stimulus, and the Fed so far has been reluctant to take its foot of the gas.
John Williams, president of the Federal Reserve Bank of San Francisco, said last week in Anchorage, Alaska, that a rate increase “makes good sense.”
On Thursday, Mr. Williams told a group of activists protesting against a rate increase that the Fed was still committed to reducing unemployment, but that he thought a lower level of stimulus was sufficient to support continued growth.
“It’s not about trying to stop the economy from growing,” he said during an unusual meeting attended by 10 Fed policy makers and more than 100 activists brought to Jackson Hole by the Fed Up campaign, which is pressing the Fed to keep rates low. “We’re going to keep this economy growing; we are going to run it hot.”
Most of Ms. Yellen’s speech on Friday was devoted to a longer-term question: whether the central bank will be ready when the next recession comes.
The Fed predicts that it will not raise interest rates nearly as high as during previous periods of economic growth. That means it won’t be able to match the depth of the rates cuts it used to combat previous recessions. But Ms. Yellen said the Fed in recent years had shown that other kinds of stimulus could also be effective.
Those tools include commitments to keep rates low for an extended period and large-scale asset purchases, which reduce the supply of available investments, forcing investors to accept lower interest rates.
“Even if average interest rates remain lower than in the past, I believe that monetary policy will, under most conditions, be able to respond effectively,” she said.