BOND REACTION: After initially rising after Yellen’s speech, USA government bond prices fell. “The case for raising rates has been strengthening for years, so this is not telling us much”, Mr Wilson said. She also noted that while inflation is still running below the Fed’s target of 2%, it is being depressed mainly by temporary factors.
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Yellen, who spoke at a symposium in Jackson Hole, Wyoming today, said the economic strength, largely driven by strong job market data, presents a good case for increasing interest rates.
The Fed raised interest rates last December for the first time in almost a decade.
Earlier, Atlanta Fed President Dennis Lockhart said on Bloomberg Television that the Fed could hike rates possibly twice this year.
U.S. stocks ended modestly lower after a volatile session on Friday, having bounced between gains and losses as investors wrestled with the likely timing of a United States interest rate hike following comments from top Federal Reserve officials. The gains were all but erased after Fed Vice Chairman Stanley Fischer said her remarks leave open the possibility of boosting rates in September.
At the same time, Fed officials don’t want to raise the rate when the economy is still sluggish and potentially help trigger another downturn.
NEW YORK (AP) – Stocks were lower on Wall Street in afternoon trading on Friday, giving up modest gains following a generally upbeat assessment of the economy from Fed Chair Janet Yellen.
The Fed raised rates in December for the first time in almost a decade and projected another four hikes in 2016, only to scale that back to two moves in the wake of a global growth slowdown, financial market volatility and slow progress in meeting its 2 per cent inflation goal.
The US Federal Reserve has its monetary policy review meetings scheduled in September, November and December, while Yellen’s speech on Friday increased expectations of a rate rate within the current calendar year.
USA stocks, along with global markets, had held off from heavy volume trading on Thursday and Asia on Friday as they waited with baited breath for hints of a rate hike timetable.
Beyond that, some observers have suggested raising the FOMC’s 2 percent inflation objective or implementing policy through alternative monetary policy frameworks, such as price-level or nominal GDP targeting. On Friday, the Commerce Department economic growth in the second quarter of the year was a bit slower than earlier estimated.
At the time, the Fed foresaw four additional rate increases in 2016.
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Specifically, Yellen referenced solid growth in household spending, but cautioned that “business investment remains soft and subdued foreign demand and the appreciation of the dollar since mid-2014 continue to restrain exports”.
