Yellen: Fed may hike rates sooner if labor market quickly improves Federal Reserve Chairwoman Janet Yellen defended keeping interest rates low before Congress on Tuesday, but opened the door a crack to earlier-than-planned rate hikes if the labor market continues its surprising improvement.

"If the labor market continues to improve more quickly than anticipated by the [Fed]," she told the Senate Banking Committee, "then increases in the federal-funds rate target likely would occur sooner and be more rapid than currently envisioned." The Fed has held its benchmark short-term rate near zero since late 2008.

While continuing to stress that "a high degree of monetary policy accommodation remains appropriate," Ms. Yellen's acknowledgment that rates could rise sooner than planned marks a notable new hedge. She made a similar comment at a news conference in June, but without pointing out that the unemployment rate and other job-market measures were improving more quickly than officials expected.

Ms. Yellen's testimony Tuesday, the first of two days of hearings on the economy and monetary policy, was her first update on the economy since an unexpectedly strong Labor Department report earlier this month showed the unemployment rate dropped to 6.1% in June and businesses expanded payrolls by a robust 288,000. The jobless rate is down from 7.5% a year ago and payrolls have grown on average by 230,000 a month during the first half of the year.

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