November 4, 2015 3:09 pm

Janet Yellen, chair of the Federal Reserve, said the US economy was performing well and that Fed rate-setters might consider raising rates at their meeting next month.

The “downside risks” to the US economy from global economic and financial developments had diminished since September, Ms Yellen said in a congressional hearing, reiterating the positive message the Fed projected after its October meeting.

The Fed chair added that spare capacity in the jobs market had fallen “significantly” since earlier in the year, even if there had been a recent slowdown in the rate of job gains.

In light of this, the Fed’s December 15-16 meeting would be a “live possibility” for an increase rates, said Ms Yellen.

Her bullish remarks pushed the dollar higher and lifted short-term yields, adding to gains following robust services data from the Institute for Supply Management.

Last month investors were wrongfooted by the central bank’s most recent policy meeting, as it signalled that a rate rise might be on the table in December after overseas threats to the US had diminished. The Fed, which has not lifted rates since 2006, has been discussing tightening policy all year.

At its October meeting, the Federal Open Market Committee indicated that it “could be appropriate to adjust rates in our next meeting,” she told the House financial services committee on Wednesday.

“No decision at all has been made on that,” Ms Yellen added. The vote would depend on the committee’s assessment of the economic outlook at the time, informed by incoming data over the coming weeks.

One of the key numbers will be labour market indicators, with payrolls data due on Friday morning.

The Fed chair was questioned about the impact on mortgages of a rate rise.

Democratic congressman Brad Sherman took a biblical tilt at monetary policy in his questioning, suggesting that if the Fed wanted to be on God’s side, it ought to delay a move until May, and raising worries about the impact of a rate increase on the housing recovery.

Ms Yellen insisted that the Fed was “very aware” that a sharp rise in mortgage rates could have a negative effect on housing.

However she added: “We do have a recovering economy where employment is going up, income is going up,” and individuals were in a better position to form households. Ms Yellen insisted that the pace of increases was going to be at a “gradual and measured pace” — reiterating a key message from the central bank this year.

One congressman contemplating possible backsliding in the economy asked Ms Yellen if she could rule out the Fed ever resorting to negative interest rates.

She said she did not see any need for them at present but noted that the Fed did not make a habit of ruling out policy options.

“Suppose the economic outlook, which I don’t expect, were to deteriorate in a significant way so that we thought we needed to provide more support for the economy, then potentially anything, including negative interest rates, would be on the table,” she said. “But we would have to study carefully how they would work in the US context.”

Ms Yellen also faced hostile questioning on bank regulation from Republican lawmakers, who accused the central bank of lacking transparency.

Jeb Hensarling, chair of the House financial services committee, said: “The Fed must not be allowed to shield its vast regulatory activities from the American people and congressional oversight by improperly cloaking them behind its traditional monetary policy independence.

“Combining the Fed’s lack of transparency with its all encompassing new regulatory authority under [the Dodd-Frank post-crisis reforms] is a dangerous mix.”