Fed Chief Says A Rate Hike In December Is Still A 'Live Possibility'

Fed Chair Janet Yellen testifies before the House Financial Services Committee, where she said an interest rate increase could still come in December.

Andrew Harnik/AP

Federal Reserve Chair Janet Yellen continues to leave the door open for an interest rate hike in December, though she says that once rates start to rise, it will be "very gradual."

Testifying before the House Financial Services Committee on Wednesday, Yellen said the economy is "performing well," with solid growth in domestic spending.

As a result, she said, there's a "live possibility" that officials could raise rates at the Fed's Dec. 15-16 meeting. However, she told lawmakers no decision has been made. The possibility of a rate increase sent already-falling stock prices down further.

Although Fed policymakers appeared likely to raise rates last summer, Fed officials have met twice since then without doing so. The reason: Slower job growth and troubles overseas have raised questions about the real underlying strength of the U.S. economy.

Yellen stressed that Fed officials would base their decision on whether to raise rates on upcoming economic data, such as the October unemployment report, which is set to be released Friday.

Yellen appeared before the committee to discuss bank regulation, one of the Federal Reserve's mandates. She said in prepared remarks that the Fed is attempting to reduce the likelihood of bank failures by making financial institutions "more resilient to stress":

"However, we recognize that we cannot eliminate the possibility of a large financial institution's failure. Therefore, a second aim of our post-crisis reforms has been to limit the systemic damage that would result if a large financial institution does fail.

"This effort has involved taking steps to help ensure that authorities would have the ability to resolve a failed firm in an orderly manner while its critical operations continue to function."

Yellen said the Fed has implemented more-stringent requirements to require banks to hold "substantially larger amounts of high-quality capital" and to hold "a buffer of high-quality liquid assets sufficient to meet net liquidity outflows during a period of severe stress."