WASHINGTON (AP) - Federal Reserve Chair Janet Yellen told Congress Thursday that economic conditions appear to be improving enough for policymakers to raise interest rates when they meet in two weeks - as long as there are no major shocks that undermine confidence.
Yellen said even after the first rate hike, the Fed expects future rate increases will be at a gradual pace that will keep borrowing costs low for consumers and businesses.
In testimony before the Joint Economic Committee, Yellen warned waiting an extended period of time to start raising rates would carry risks.
"Were the FOMC to delay the start ... for too long," she said, "we would likely end up having to tighten policy relatively abruptly to keep the economy from overshooting" the Fed's goals for unemployment and inflation.
"Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into a recession," Yellen said.
She also cited concerns by Fed critics that keeping rates exceptionally low for too long "could also encourage excessive risk taking and thus undermine financial stability."
Fed policymakers meet on Dec. 15-16. The Fed's key short-term rate has been at a record low near zero for the past seven years.
Many private economists are forecasting the first rate hike by the Federal Open Market Committee, the Fed's policy panel, will be a modest quarter-point move, followed by four more quarter-point moves over the next year.
"Between today and the next FOMC meeting, we will receive additional data that bear on the economic outlook. These data include a range of indicators regarding the labor market, inflation and economic activity," Yellen told the JEC. "When my colleagues and I meet, we will assess all of the available data and their implications for the economic outlook in making our decision."
The Labor Department will release its November employment report today. Analysts believe the data will be key in determining whether the Fed boosts rates this month.
Asked about the upcoming unemployment report, Yellen said the Fed will be watching for "a continued solid trend of job creation" that would indicate the economy has good momentum going forward.
Yellen repeated past comments that she believed two key factors keeping inflation below the Fed's 2 percent target - the rise in the value of the dollar and falling oil prices - were likely to fade over time.
Private economists said Yellen's remarks over the past two days sent a strong signal that the Fed is ready to start raising interest rates at its meeting this month.