The head of the US Federal Reserve said has said that a rate rise would probably be appropriate in “coming months” if the US economy continued to improve.
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The Fed has moved forcefully in recent weeks to convince investors that it could raise rates as soon as its next meeting, June 14 and 15.
Regarding Friday´s batch of economic data, the most noteworthy development appeared to be the improved consumer confidence readings seen in the United States and France in particular, but also in the UK.
Although they briefly trimmed gains on Yellen’s remarks, USA stocks ended higher and the S&P 500 capped off its strongest week since March.
Friday’s U.S.jobs data will be the highlight of the week after some members of the Fed’s Federal Open Market Committee suggested a rate increase could come as early as June if the US economy recovered from a weak first quarter.
Economic growth in the first quarter was a paltry 0.8 percent annual pace, but current official and private sector forecasts point to 2.5-3.0 percent growth for the current quarter.
Fed Governor Jerome Powell on Thursday laid out a clear argument for raising interest rates while stressing that global risks, including the Brexit vote in the week following the next meeting of the us central bank, meant there was no reason “to be in a hurry”. Yellen was introduced by former Fed Chair Ben Bernanke, to whom she said Americans owe “an enormous debt of gratitude” for guiding the economy through the 2007-2009 financial crisis.
In an interview at Harvard University, economics professor Gregory Mankiw reportedly asked Yellen if she wanted to say something to move markets so that traders could leave and go to the Hamptons for the long weekend. The S&P 500 added 8.96 points, or 0.43 percent, to 2,099.06.
“Fiscal policy is positive for the yen, but if the stimulus is accompanied further monetary easing, then it is a yen-weakening factor as brings the concept of “helicopter money” to mind”, said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.
The FOMC last met in April but declined to raise the benchmark rate, largely because USA inflation remained below the bank’s target threshold of 2 percent.
Earlier in the week, Dallas Fed President Robert Kaplan said he expected at least two rate hikes in 2016. As recently as early May a Fed rate hike in June was completely off the agenda.
At the same time, Yellen noted that the unemployment rate nears the FOMC’s long-term objective, even as wage growth and the level of part-time workers, marginally attached to the labor market remains soft. Global investors, many of whom had assumed the Federal Reserve was in no rush to raise interest rates, were jolted last week by the minutes which suggested most policymakers felt the U.S. economy could be ready for another rate increase in June. “The labour market reports have many different aspects to them and you’d have to look at the totality of the report”.
“The market is giving permission to the Fed to raise rates”, Mr Ablin said.
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“That’s a serious and negative development”, Yellen said.
