(Recasts with Yellen comments, adds quotes, updates prices) * Yellen seen more hawkish, but noncommittal * Yield curve flattest since March 2015 By Karen Brettell NEW YORK, Aug 26 (Reuters) – U.S. Treasuries prices gained on Friday as investors saw the Federal Reserve as unlikely to raise rates at its September meeting, even after Fed Chair Janet Yellen said the case for a hike has strengthened.
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Yellen said the case to raise interest rates is getting stronger as the United States economy approaches the central bank’s goals, though she did not discuss the specific timing of a move.
“Looking ahead, the FOMC expects moderate growth in real gross domestic product, additional strengthening in the labour market, and inflation rising to 2 per cent over the next few years”, Yellen said.
The market didn’t appear to find this disturbing, suggesting that Fed chief Janet Yellen’s speech at the economic summit in Jackson Hole was the market’s main focus.
Despite her clear signal that a rate hike was now more likely, Yellen cautioned that Fed decisions would depend on economic conditions that could vary widely.
While European equities advanced, they have alternated between weekly gains and losses all month, with the STOXX 600 trading in a tight range and struggling to find a direction after a rebound of as much as 12 percent following the aftermath of Britain’s secession vote. It was trading at $47.39 before Yellen’s speech and touched highs above $48 as she spoke.
Some economists say they think Yellen will alert investors Friday that the central bank might be inclined to act in September. Traders are now pricing in a 63.7 percent likelihood of a hike in December, up from 51.8 percent Thursday. Those may be needed again, she said, as the next recession may arrive before interest rates rise to levels normally seen during an economic recovery. But she said those options would require more study.
“If you decide that we’re at maximum employment now and you intentionally slow down the economy, you’ll be leaving us behind, pulling up the ladder right after you’ve climbed it”, Adams said. She said efforts need to be made, in particular, to boost the productivity of USA workers.
Yellen was the lead-off speaker Friday for the annual conference sponsored by the Federal Reserve Bank of Kansas City. The group of policy activists, labor unions and community groups has been lobbying the Fed since 2014 to keep rates low to allow the economy to strengthen enough to benefit more Americans.
Fed officials did not object when Kendra Brooks of the Philadelphia group ACTION United called out the central bank for the lack of diversity among its governors, boards of directors and staff members.
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“Our communities are being sacrificed for an inflation enemy that isn’t here”, said Rod Adams, a community organizer for Neighborhoods for Change in Minnesota.
