Federal Reserve Chairman Janet Yellen is counting on continued strength in the USA economy to support the central bank’s move to slightly higher interest rates while the manufacturing sector struggles with the stronger dollar’s drag on exports.
Advertisement
In addition to her Wednesday speech, Yellen is scheduled to testify on the economy before the Congressional Joint Economic Committee on Thursday.
She also expects the USA economy to continue to experience “steady growth”.
And so as much as the economic situation right now calls for action from the Fed, raising rates will be something of a coronation for the economy’s long slog back from the depths of the worst recession since the Great Depression.
Janet Yellen has strongly indicated to Congress that Federal Reserve policymakers are likely to vote to raise USA interest rates in two weeks – barring any major shocks to the global economy.
The federal funds rate, a key short-term benchmark, has been near zero since December 2008 in an attempt to boost economic growth during the Great Recession and its aftermath. Not that it needs to be pointed out, but increasing rates in a deflationary, growth-slowing economy is a recipe for disaster.
In regard to the Chinese currency, Yellen said that, despite the deprecation in the last summer, the Renminbi “has been strengthening rather substantially relative to many of its trade partners”. Some economists point to the lagging pay as evidence that the job market isn’t as healthy as the low unemployment rate would suggest.
Over the past 3 months, job gains have averaged 218,000 per month, according to the Labor Department.
The labor force participation rate was essentially unchanged at 62.5%, holding near a four-decade low. Revisions to prior reports added a total of 35,000 jobs to overall payrolls in the previous two months.
Others have argued that the Fed’s long-awaited hike will probably be anticlimactic because markets are already speculative and forward-looking in nature – meaning that any impact from a rate increase may have already taken hold. At the same time, the Bureau of Economic Analysis sees higher wage gains that could point to rising inflation in 2016, which would embolden the Federal Reserve to increase interest rates.
While signaling confidence on inflation she also said the FOMC will watch closely for real progress on inflation and for any signs that inflation expectations are falling. “It’s been growing around 3 percent”.
Advertisement
“There could be events I suppose, terrorism or otherwise, that could make you postpone, but I think the certainly of (a rate hike) is up over the 90 percent mark”, said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, N.J. Higher rates tend to weigh on non-interest-paying gold. Yellen felt compelled to comment on the market reaction, saying investors had expected European Central Bank actions that were apparently not forthcoming.
