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.
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“Based on this economic outlook, the FOMC 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”, she added.
But as she continually does, Yellen warned “the economic outlook is uncertain” and the Fed’s monetary policy is not “on a preset course”.
Yellen also acknowledged that the presently expected inflation rate of two percent has gone past the previously defined limits that would require a rate adjustment to maintain growth without inflation.
The perceived chances of a rate hike in September climbed to 36 per cent from 21 per cent the previous day, according to CME Group’s FedWatch tool.
And in our view, Yellen sent a similar message to markets today – making an official rate hike at the upcoming September Fed meeting a very high probability (barring a surprising slump in August payrolls).
Following US Federal Reserve chair Janet Yellen’s speech earlier in the day, her number two at the Fed, vice-chair Stanley Fischer, told CNBC her comments were consistent with a possible September hike and two rate hikes before 2016 was out.
The last Fed rate increase came last December, marking the first in nearly a decade.
Hunter pointed to a government report Friday that the economy, as measured by the gross domestic product, grew at an anemic 1.1% annual rate last quarter as evidence that the Fed likely wants to see stronger growth.
Yellen did not lay out a clear roadmap for what the Fed needs to see to raise rates.
“The initial headlines after the release of Janet Yellen’s speech definitely caused some knee-jerk reactions in the markets”, Chris Gaffney, the president of EverBank World Markets, said in an email. However, at that meeting FOMC members indicated that four more hikes were on the way in 2016. “While economic growth has not been rapid, it has been sufficient to generate further improvement in the labor market”.
The S&P 500 rose as much as 0.7 per cent and declined by as much as 0.6 per cent during the session.
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Even if the Fed does decide to push interest rates up, however, it will most likely only be by around a quarter of a percent. “They are looking at lower natural interest rates in the U.S. That doesn’t give the market any reason to buy dollars aggressively”.
