But she stopped short of offering any timetable.
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It was the most highly anticipated speech of the year, and there’s no doubt that US Federal Reserve chair Janet Yellen meant to use her Jackson Hole address to send a message to US financial markets. She stated that the United States economy is nearing its goals on inflation and employment, making the rate hike case stronger.
She also noted that while inflation is still running below the Fed’s 2 per cent target, it’s being depressed mainly by temporary factors. Considering these, Yellen believes “the case for an increase in the federal funds rate has strengthened in recent months”. Despite showing these projections, Yellen stressed that as always, future policy decisions would be based on economic data and not on a preset course.
The US Federal Reserve has suffered stinging criticism in recent months for a perceived lack of coherence in its public positions on monetary policy, and markets had eagerly awaited her speech for some policy clarity. Certainly, if the Fed Chair had decided that she wanted to push for a September rate rise, then, of course, she would nearly be compelled to send a strong signal tomorrow.
Hunter pointed to a government report Friday that the economy, as measured by the gross domestic product, grew at an anaemic 1.1 per cent annual rate last quarter as evidence that the Fed likely wants to see stronger growth.
By the end of day Friday, traders were pricing in a 63.7% probability the Federal Reserve will raise interest rates this year, according to the CME 30-day Fed Fund futures prices.
For example, in tackling the 2008 financial crisis, Washington repeatedly used quantitative easing measures – the essence of the approach is first introducing a deluge of dollar cash to dilute the problem and then let it spread across the world.
At the time, the Fed foresaw four additional rate increases in 2016.
In the United States and globally, the big focus will be on August jobs data (Friday) as the last major data release ahead of the Fed’s September 26-27th meeting.
Yellen said the central bank’s own range of projections for its benchmark interest rate is “quite wide”. Others say they foresee no action until December, after the elections, at the earliest.
“I think it will be a mistake to take into account the political process not because it is irrelevant to the economy but because this will actually be the politicization of monetary policy”, he told CNBC’s Steve Liesman while attending the Fed’s Jackson Hole summit.
In the end Yellen delivered a speech in which she wanted to talk up the odds of another rate hike.
“Investors should stop looking at every word that comes out of the Fed”, said Karyn Cavanaugh, market strategist at Voya Investment Management.
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Markets remained unconvinced with the chances of a September move still seen at below 25% after Yellen, while the potential for a hike by December is seen at around 55%. Yellen, however, explained the Fed now has new tools which proved particularly useful in combating the lingering effects of the Great Recession.
