Earlier, Fischer told CNBC next week’s jobs report would weigh on the Fed’s rate hike decision.
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In saying the Fed expected “moderate” economic growth, “additional strengthening in the labor market” and inflation rising toward the central bank’s annual 2 percent target, Yellen appeared to be preparing financial markets for a potential rate hike after the central bank’s September 20-21 meeting.
After today’s remarks, there is now an increasing possibility that the Fed may even act as early as the meeting in September or October. There was very choppy price action after the release with the dollar initially strengthening sharply before reversing to show net losses on the day as markets were extremely reluctant to price in additional risk surrounding a September rate increase.
Federal Reserve chair Janet Yellen’s “biggest speech of the year” has come and gone.
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.
She also noted that while inflation is still running below the Fed’s 2 percent target, it’s being depressed mainly by temporary factors.
In carrying out monetary policy, the Fed now can buy U.S. Treasury debt and securities issued or guaranteed by government-sponsored agencies such as Fannie Mae or Freddie Mac. Traders are now pricing in a 63.7 percent likelihood of a hike in December, up from 51.8 percent Thursday.
The Dow Jones Industrial Average was up 104.33 points, or 0.57 per cent, at 18,552.74.
Markets have been watching closely for signs the Fed is ready to start raising United States interest rates, a move that would lift the USA dollar and bring the kiwi down.
“Taken in balance the market has found a new direction today; it’s just with those comments coming so close together we got bounced around a little bit”.
Mirroring the market’s swings, the CBOE Volatility index .VIX , known as Wall Street’s “fear gauge”, touched a seven-week high of 14.93. Palladium was 0.1 percent lower at $683.30.
Oil prices stabilized after taking cues from the dollar and reacting to reports of Yemeni missiles hitting Saudi Arabia’s oil facilities.
European stocks gained strength, with a late boost from Yellen’s remarks. France’s CAC 40 edged down 0.2 percent.
Bond prices move inversely to their yields. Financials, which stand to gain the most if rates are raised, jumped 0.78 per cent.
The yield on the benchmark 10-year Treasury note sat lower, at around 1.5663 percent, while the yield on the 30-year Treasury bond was also lower at 2.25 percent.
“She’s certainly tried to make a case, but the market doesn’t believe that the Fed is going to actually raise rates”, said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management.
Yellen however said that the case for a rate hike had strengthened thanks to improvements in the labour market and expectations for solid economic growth, reiterating that future increases should be “gradual”.
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Yellen “is opening the door” for the eventual consideration of new policy options for the Fed, said Laura Rosner, senior USA economist at BNP Paribas in NY. “Then Fischer said two rate hikes were possible” and stocks went lower.
