Federal Reserve Chair Janet Yellen views allowing the economy to run markedly and persistently "hot" as "risky and unwise."
"The combination of persistently low interest rates and strong labor market conditions could lead to undesirable increases in leverage and other financial imbalances, although such risks would likely take time to emerge," Yellen said in a speech at Stanford University on Jan. 19.
She warned against delaying increasing rates, which she said could require the Federal Open Market Committee to eventually raise them rapidly. This could in turn risk financial markets disruption, as well as pushing the economy into recession.
"I consider it prudent to adjust the stance of monetary policy gradually over time — a strategy that should improve the prospects that the economy will achieve sustainable growth with the labor market operating at full employment and inflation running at about 2 percent," Yellen said.