At the same time, Fed officials don’t want to raise the rate when the economy still is sluggish and potentially help trigger another downturn.
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Yellen announced her intentions at a conference yesterday, saying, “In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase (in the Fed’s benchmark borrowing rate) has strengthened in recent months”. Making it clear that despite the hawkish tone, the Fed’s next move remains data dependent. This had then marked the first rate hike in almost a decade.
Employment has been the strongest pillar of the USA economic recovery, but at near full employment it has struggled to justify a rate hike on jobs data alone.
A widely watched gauge by the CME Group futures exchange put the odds of a 0.25 percentage point increase in September at 24 percent after the speech, up from 21 percent Thursday.
On Friday, representatives of many central banks from across the world, as well as academics and observers, gathered in Jackson Hole, WY, to discuss certain likely developments in the global economy and monetary and fiscal policies, as well as to try to figure out whether worldwide trade in goods, services and capital would likely go in the light of Brexit, US elections and emerging markets’ steady grind to a halt. The words from Chair Yellen, while not the strongest of endorsements for a rate hike in September, did boost the United States dollars across the board.
The views on the Fed are split. Such a report could tilt Fed officials toward a rate increase. The host of the summit is Kansas City President Esther George, the only dissenter in the Federal Open Market Committee (FOMC) who voted for a rate hike in the last two meetings.
The conference’s theme is “Designing Resilient Monetary Policy Frameworks for the Future”, reflecting concern that the global economy has become trapped in a slump of low growth and low inflation and uncertainty about how central banks should respond. Hiking now, even at a token 25 basis points might mean a rate cut that could have been avoided by showing patience.
She noted the USA economy continues to expand, “led by solid growth in household spending”. “I think that the Fed wants to get the market to start pricing in a hike for this year, which they weren’t doing earlier, and now I’m seeing the probability of a hike by December has gone up slightly over a coin toss”.
West Texas oil lost 2.761 percent in the last five days.
Benchmark U.S. crude oil rose 31 cents to $47.64 a barrel. Central banks have struggled when communicating with investors, and with forward guidance a thing of the past, now monetary policymakers have abused rhetoric leaving a confused market and a diluted power of verbal intervention. The rate had been kept at a record low near zero since the depths of the 2008 financial crisis.
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Stanley Fischer, the Fed’s vice chairman and a close Yellen ally, said after her speech that in deciding whether to raise rates as soon as September, policymakers will assess the August jobs report next Friday to see whether employment growth maintains its solid pace of the past three months.
