Federal Reserve Chair Janet Yellen, right, greets Tammy Edwards, of the Federal Reserve Bank of Kansas City, as she arrives for a reception on the opening night of the annual invitation-only conference of central bankers from around the world, sponsored by the FRB of Kansas City, at Jackson Lake Lodge in Grand Teton National Park, north of Jackson Hole, Wyo., Thursday, Aug. 25, 2016.
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Stocks were mostly lower on Wall Street in early afternoon trading on Friday, giving up modest gains following a generally upbeat assessment of the economy from Fed Chair Janet Yellen.
Recent strong US economic data have encouraged some Fed policymakers to believe that interest rates should rise soon.
Several policymakers, including San Francisco Fed President John Williams and Kansas City Fed President Esther George, on Thursday defended the need to raise rates, albeit gradually, to keep the USA economy overheating. Instead, she stressed, as she frequently has, that the Fed’s rate decisions will depend on whether the freshest economic data continues to confirm its outlook. It may also want to explore other options, including broadening the range of assets it can purchase, raising the inflation target, or targeting nominal GDP, she said.
Her comments bolstered bond traders’ view that the central bank will lift borrowing costs only slowly in the face of a US economy that’s been hindered by signs of slowing growth overseas.
Fed officials worry that leaving rates too low for too long could stoke inflation, forcing the Fed to raise rates aggressively.
At the time, the Fed foresaw four additional rate increases in 2016.
The job market is humming, and so are the USA financial markets, with major stock indexes near record highs.
A core group of Fed policymakers, the Board governors, are now debating what is going on in the US economy and how to set policy, Fed Vice Chair Stanley Fischer told the meeting.
The Federal Open Market Committee “continues to anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives”, Yellen said in prepared remarks.
“Investors are not pricing in a Fed tightening”, said Swonk, who expects the Fed to take no action until January. After Yellen’s speech, data from the CME Group indicated that investors foresee only a 24 per cent probability of a rate hike in September and about a 58 per cent chance by December.
Some economists say they think Yellen will alert investors Friday that the central bank might be inclined to act in September.
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Central bankers have gathered in Wyoming this week to discuss monetary policy and the course of the American economy as it moves into the second half of the year. Other Fed officials, including several close to Yellen, have favored a more cautious approach.
