NEW YORK (TheStreet) -- The Federal Reserve's watchwords on interest rates have been "lower for longer." That approach may soon be traded in for "sooner and slower."
Fed Chair Janet Yellen appeared before a House committee Wednesday and defended the central bank's tentative plans to begin raising interest rates this year, saying that moving sooner may allow for a more gradual path of hikes once the federal funds rate begins to move up from the near-zero level the Fed has imposed since 2008.
Under questioning from New York Democratic Rep. Carolyn Maloney, Yellen distanced herself from the advice of the International Monetary Fund, which last month urged the Fed to wait until next year to raise rates, saying that path would give central bankers more flexibility to keep unexpected financial shocks like the Greek default drama from having unexpectedly large effects.
"The IMF [has] also argued that taking the first step along that gradual path should happen once there are more tangible signs of wage or price inflation than are currently evident," said four IMF economists in a blog post on June 25.
"If we waited longer, it certainly could mean we have to do [hikes] more rapidly," Yellen told the House Financial Services Committee today, in her semi-annual report on monetary policy. "An advantage of moving earlier may be that we can have a more gradual path of rate increases.''
Yellen painted the sooner-and-slower approach as the more measured path toward raising interest rates without riling markets or the economy. Moving slowly after nearly seven years of near-zero rates "strikes me as a prudent approach to take," she said.
The panel's Republicans didn't focus on short-term monetary policy. Instead, they zeroed in other other parts of the Fed's mission, highlighted by investigations into last year's flash crash, money laundering and a 2012 leak of Fed deliberations. Committee chair Rep. Jeb Hensarling used his question time to press Yellen on whether the five-year-old Dodd-Frank law would allow a U.S. bailout of a foreign bank and asked whether the Fed should set rates by applying a fixed standard that ties interest rates to inflation and economic output.
Yellen's prepared remarks deviated little from her recent speeches and other public statements about rates.
As before, she suggested that the central bank will raise the federal funds rate, now set to a range between zero and 0.25%, before the end of this year. She also repeated that the Fed's decision about timing has not been made yet, and could change as data about the economy's mid-year performance is announced.
"Let me emphasize again that these are projections based on the anticipated path of the economy, not statements of intent to raise rates at any particular time," Yellen testified. She also repeated her prior statement that the central bank could begin to raise rates at any of its meetings this year, discounting suggestions that the move will come in September or December, when she has already scheduled press conferences following the meetings of the Fed's Open Market Committee.
Markets barely reacted to Yellen's mostly-familiar remarks, as yields on 10-year Treasurys were down a hair to 2.39% late this morning.
Yellen focused on signs of cyclical improvement in the economy, including what she called ''at least tentative signs that wage growth is improving." She said her fellow Fed governors expect unemployment to decline gradually as the economy bounces back from a slow first quarter she said was disrupted by bad weather, a West Coast port strike, and the impact of a rising dollar on exports.
But under questioning from Alabama Democratic Rep. Terri Sewell, Yellen returned to her recent theme that structural issues are still holding back growth -- especially the paltry rate of productivity growth, which has hit a 30-year low in the last three years.
"Productivity growth in recent years has been frankly very disappointing,'' she said.