Feb. 14 (UPI) -- Federal Reserve Chairwoman Janet Yellen told a Senate committee Tuesday interest rate increases are likely because the central bank foresees gradual rising inflation and tightening labor markets.
Yellen's semi-annual monetary policy report before the Senate Banking Committee is the first since Donald Trump became president. She noted fiscal policy is uncertain because Trump is working with congressional Republicans to roll back tax rates for individuals and corporations, and to cut regulations.
"At our upcoming meetings, the committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate," she said in prepared remarks.
Yellen didn't mention during her prepared remarks when rates will be increase.
"Waiting too long to remove accommodation would be unwise, potentially requiring the [Federal Open Market Committee] to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession," Yellen said.
The Fed has forecast three quarter-point rate increases this year.
Th central bank kept its target overnight lending rate near zero for seven years and increased it only in December 2015 and December of last year. The funds rate is currently targeted in the 0.5 percent to 0.75 percent range.
Yellen said the Fed did not increase the rate earlier this month "but reiterated that it expects the evolution of the economy to warrant further gradual increases in the federal funds rate to achieve and maintain its employment and inflation objectives."
Yellen said growth is "moderate" as the job market improves and inflation gradually move up the Fed's 2 percent target. She noted inflation increased over the past year, "mainly because of the diminishing effects of the earlier declines in energy prices and import prices."
She said the U.S. real gross domestic product is estimated to have risen 1.9 percent last year, the same as in 2015.
"Consumer spending has continued to rise at a healthy pace, supported by steady income gains, increases in the value of households' financial assets and homes, favorable levels of consumer sentiment, and low interest rates," she said.
But with Trump as president there's uncertainty.
"Of course, it is too early to know what policy changes will be put in place or how their economic effects will unfold," she said. "While it is not my intention to opine on specific tax or spending proposals, I would point to the importance of improving the pace of longer-run economic growth and raising American living standards with policies aimed at improving productivity."
With the announced departure in early April of Fed Governor Daniel Tarullo, Trump can fill three of the seven Fed Board seats. Two vacancies exist and Yellen's own term as chairwoman ends in February 2018.
Senate Banking Committee Chairman Mike Crapo said Tuesday "it is time to reassess what is working and what is not" with financial regulations and to "strike the proper balance" between safety and economic growth.
U.S. stocks on Tuesday had small gains and losses.
Two hours after its 9:30 a.m. opening, the Dow Jones Industrials increased 9 points to 20,422.