When it comes to low interest rates, winter is coming. That was Federal Reserve chair Janet Yellen's clear message Wednesday.

Despite strong objections from some of her advisers, Yellen announced no change this week, but her language warned Canadian homeowners that they can likely expect a U.S. rate rise as a Christmas present.

"We're generally pleased with how the U.S. economy is doing," said Yellen. "We're seeing definite evidence that the economy is now expanding more strongly."

Bubble worry

So strongly that Yellen and her advisers on the committee that makes interest rate decisions were unanimous that a rate rise was needed.

"We are worried that bubbles could form in the economy," she said.

If that's so, why didn't they raise rates this time? In fact, there is evidence that the discussion was heated by the standards of the genteel Federal Open Market Committee.

There were "active discussions" and "an exchange of views," said the Fed chair in her understated way. But the real evidence of a strong split in the committee was the fact that they were unable to reach consensus on what was ultimately a fairly bland written news release.

Playing politics?

Three members of the committee voted against the decision not to raise rates this time.

Reporters at Yellen's news conference used the split to ask whether the committee's decision was motivated by politics.

U.S. Federal Reserve chair Janet Yellen says an influx of new workers and little sign of overheating has allowed the bank to hold off on a rate rise. But it's coming. (Mark Wilson/Getty Images) They noted that Republican presidential candidate Donald Trump has pointed a finger at Yellen for helping the Democrats by keeping interest rates lower, and therefore the economy hotter, than it would have otherwise been in the months before the election.

Yellen's boilerplate response that "the federal reserve is not politically compromised" and that minutes will show that no politics were discussed does nothing to prove that committee members didn't shape their arguments and register their votes fully understanding the political impact.

Even if their decision was not partisan, such sophisticated monetary wonks would recognize that disrupting markets in the month before presidential elections could be seen as active interference in the political process.

That said, Yellen had a different reason for the split, and for the delay.

Waiting too long

Those who felt strongly that a rise in rates was needed immediately pointed to a booming U.S. job market, she said. They worried that delaying an increase even for two months could allow inflation to get a foothold that could only be stopped by much sharper interest rate rises in the future.

She admits the concern is valid.

"We could cause a recession, and so that's something my colleagues and I certainly wouldn't want to do," she said.

The majority of the committee, however, worried about cooling the economy too soon.

The target is always moving, but Yellen said there were two pieces of evidence that showed the Fed had some room to manoeuvre.

"Our decision does not reflect a lack of confidence in the economy," she said.

Inflation is not rising as quickly as some have feared, and the jobs market, while on a tear, is not as tight as the majority of the committee had previously feared.

Back to work

Job creation, running at 180,000 a month, while weaker than it has been, remains strong.

"It's well above what's needed to provide jobs for new entrants into the labour force," said Yellen.

As the U.S. begins producing jobs, people who had dropped out of the workforce have once again begun looking for work, meaning Yellen did not have to raise rates immediately. (Reuters)

That level of job creation can't continue without overheating the economy, but Yellen says there are signs that workers who had once been discouraged and had withdrawn from the labour market were now back looking for work as prospects improved.

Yellen says that new influx of workers is providing a little extra slack in the economy, meaning a rate increase can be delayed.

Officially, the Fed has another meeting in November in the week before the presidential election. Raising rates then would be nothing but disruptive.

That leaves the next practical date for a rate rise at December 14, when market traders and many others are just heading off on their winter holidays.

Most Canadians won't be affected immediately by the U.S. rise in rates, and Bank of Canada governor Stephen Poloz says we should expect Canada's official rate to stay low. That means the Canadian dollar should fall.

Borrowers should keep their eyes open. Canadian mortgages and other loans can be affected by U.S. bond rates, and Yellen's message is that, for the first time in a long time, rates are on the way up.

Then again, she gave us a much more serious warning a year ago, and since then, nothing much has really happened.

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