Stock markets were mostly lower Friday as investors awaited a speech by U.S. Federal Reserve Chairwoman Janet Yellen later in the day for cues on the timing of the next interest rate hike.
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Stock markets and the loonie had barely moved Thursday in anticipation of Yellen’s speech Friday at the central bank’s annual summer symposium in Jackson Hole, Wyo. She pointed to steady gains in employment and strength in consumer spending.
Pointing to solid growth in household spending and a strengthening job market, Yellen said that the US economy is “now nearing” the Fed’s statutory goals of maximum employment and price stability.
In addition to December, the Fed also has policy meetings scheduled in September and November, although prices for fed funds futures imply investors see scant chance of a rate increase at either of those meetings.
Yellen has stressed repeatedly that the Fed’s outlook for rates depends on the most recent economic data and not on any preset timetable.
“As ever”, she said, “the economic outlook is uncertain, and so monetary policy is not on a preset course”.
The Fed funds rate remained there for seven years before the central bank nudged it up a quarter of a percentage point in December. That was when it raised its benchmark lending rate from near zero, where it had been since the depths of the financial crisis in 2008.
USA economic data released early Friday had minimal impact on the market.
In her speech, Yellen said the US central bank already thinks the economy is close to meeting its goals of maximum employment and stable prices.
“They all agreed the Fed needs to do a better job on diversity”, said Ady Barkan, campaign director for the Fed Up coalition. “We think the evidence is that the economy has strengthened”.
The FTSE 100 jumped by 0.5 per cent shortly after the chair of the USA central bank said the case for lifting rates in America had strengthened.
Janet Yellen, the head of the US Federal Reserve, has signalled that US interest rates could rise following a strong performance from the world’s largest economy.
The Fed began lowering the rate from 4.5% in 2006 as the economy slid toward the Great Recession. She said the Fed still planned in the future to wind down its massive balance sheet but that it would take time, adding that the balance sheet was likely to be useful for policy for some time. “She suggests the economy is improving, but the GDP numbers for the past three quarters are closer to 1 percent than three percent”. After trading closed, Icahn said the reports were wrong and, in fact, he has bought more shares.
Such a view is “exaggerated”, Yellen said, because the Fed will be able to use bond purchases and forward guidance to ease conditions.
About 6.57 billion shares changed hands in US exchanges, compared with the 6.16 billion daily average over the last 20 sessions. Productivity growth has weakened sharply in recent years and has been a major factor in holding the economy back.
Stock markets in Toronto and NY made gains in the morning following the speech, with the Toronto Stock Exchanges’s S&P/TSX composite index soaring more than 100 points.
Yellen’s speech Friday was closely parsed for hints to which way the Fed was leaning, but the text of her remarks was very careful to not commit to a timeline.
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The group, some wearing T-shirts bearing the slogan, “We Need a People’s Fed!” posed questions about economic policy and the need for diversity to the Fed officials who took part in the 90-minute discussion.
