Fed's Yellen looks ahead to rate increases

By Ros Krasny

VANCOUVER, British Columbia (Reuters) - U.S. interest rates have now been cut to the right level to bolster the economy and will need to be raised in a timely fashion as growth picks up, San Francisco Federal Reserve Bank President Janet Yellen said on Tuesday.

"I would be pleased if futures markets turn out to be right" in their call for the Fed to start raising rates late this year, Yellen told reporters after a speech to the CFA Institute conference in Vancouver. "It's too early to make the call on whether December will be the right time."

Derivatives markets on Tuesday almost fully priced in an increase in the benchmark federal funds rate to 2.25 percent from the current 2 percent by the scheduled December meeting of the Fed's policy-setting Federal Open Market Committee.

Yellen, not a voting member of the FOMC in 2008, told reporters a rate hike would be a sign that the economy had picked up, but that further weakness before then would not be a surprise, nor make an automatic case for more rate cuts.

"I consider the current level of monetary accommodation to be appropriate. That, together with the fiscal package, should be sufficient to promote a gradual step up to moderate economic growth later this year," she said.

Estimates on second-quarter growth range widely, with negative growth "possible," Yellen said, on the back of two straight quarters of meager 0.6-percent increases in gross domestic product.

In her speech Yellen noted that the real federal funds rate is "at an accommodative level of around zero," or equal to the rate of inflation.

It will be important for the Fed to not leave economic stimulus in place once the economy turns, she said, adding: