The Fed has policy meetings scheduled in September, November and December, Reuters reported.
Advertisement
ASIA’S DAY: Japan’s Nikkei 225 fell 1.2 percent after consumer prices fell the most in three years in July.
Sure to ripple through equities and commodities markets, Yellen’s words returned a measure of clarity on the intentions of U.S. monetary policymakers, who have been publicly at odds in recent months over the need to raise rates in the near-term. The rate declined to near zero in 2008 in an unprecedented attempt to stimulate economic growth. Still, there are those who see global economic weakness as a reason for the Fed keeping rates steady. Others say they foresee no action until December, after the elections, in at the earliest.
IG’s market analyst Angus Nicholson said in a morning note that there was “fear evident in markets that Janet Yellen is going to be surprisingly hawkish and talk up a September hike”. “We think the evidence is that the economy has strengthened”.
Yellen noted that Fed officials have a wide range of views on where rates will likely be in the coming years.
In her speech, Yellen said the Fed still believes that future rate increases, whenever they occur, will be “gradual”.
One interesting issue is that Yellen said in the longer run that fed funds might settle around 3%.
The chief also spoke about how the Fed would deal with future recession amid concerns the USA economy is slowing.
“In addition to taking the federal funds rate back down to almost zero, the FOMC could resume asset purchases and announce its intention to keep the federal funds rate at this level until conditions had improved markedly – although with long-term interest rates already quite low, the net stimulus that would result might be somewhat reduced”, she said.
She said the Fed should research San Francisco Federal Reserve Bank President John Williams’ idea of raising the Fed’s inflation target.
The world is wondering how Janet Yellen interprets the current macro situation, especially now that the U.S. economy gives signs of solid recovery and that the major macro risk – Brexit – is behind us.
Yellen pointed to a recent rebound in employment and said the Fed expects the economy to continue expanding.
Yellen did not indicate when the USA central bank mightraise rates, but her comments reinforced the view that such a move could come later this year.
Advertisement
Although job growth has been solid this summer, the overall economy was sluggish the first half of the year.
