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Yellen Sees "A Few" Rate Hikes Per Year Until 2019

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While the background on what the Fed's role is, the reality is that investors, economists, job seekers, consumers and borrowers alike all wonder just how far the FOMC plans to raise interest rates and over what sort of time period.

"In that scenario, we could be forced to raise interest rates rapidly, which in turn could push the economy into a new recession".

In her speech, though, Yellen said while rates are expected to move higher in the coming years, inflation is still running below the Fed's objective, and by some measures, there's room left for improvement in the labor market.

Federal Reserve Chair Janet Yellen says the economy has come a long way in recovering from the 2008 financial crisis, and the Fed is getting close to achieving its goals of maximum employment and stable inflation.

In either of those events, the USA central bank would have to raise rates quickly, which could lead to a recession, she said.

However, she emphasized that forecast could change significantly depending on the economy's performance in the Trump era.

Rising interest rates "means that, although the interest rates you pay on, say, your auto loan or mortgage or credit card likely will creep higher, they probably will not increase dramatically".

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"Right now our foot is still pressing on the gas pedal".

Bond were lower ahead of Yellen's speech, with the two-year yield - sensitive to interest-rate expectations - up three basis points to 1.189% at 2:43 p.m.

Waiting to long to raise rates could result in a "nasty surprise", the Fed chairwoman said.

Her speech comes to markets ahead of the main highlight of this week, which is President-elect Donald Trump's inauguration and speech on Friday.

The 3 percent level for the Fed's target for the federal funds rate, the interest that banks charge each other, is the point that the Fed now believes is the so-called neutral rate - the level where the Fed's interest rate policies are not spurring growth or holding it back.

Without commenting directly on Trump, Yellen said she will "closely follow" the many new economic policies that are under discussion.

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