The Fed’s aversion to negative rates shows how central bankers are confronting the limits of their efforts to stimulate the slow-growing global economy. But at the same time, business investment has been “soft” and USA exports have been held back by “subdued foreign demand” and the strong dollar, Yellen said.
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In her first public comments in two months, Yellen said Friday the economy is improving to the point policymakers may be able to nudge up the benchmark federal funds rate for the first time since December. However Yellen said a lot of new jobs were being created and economic growth would likely continue at a moderate pace.
“I believe the case for an increase in the federal funds rate has strengthened in recent months” Yellen said addressing an global gathering of central bankers here.
Dr Yellen told a monetary policy conference that the case for a rate increase has strengthened in recent months.
“We need to raise rates to normalize”, said Jeff Carbone, managing partner at Cornerstone Financial Partners.
U.S. stocks ended modestly lower after a volatile session on Friday, having bounced between gains and losses as investors wrestled with the likely timing of a United States interest rate hike following comments from top Federal Reserve officials.
Other analysts aren’t so sure.
Commenting on Yellen’s speech, Subadra Rajappa, head of rates strategy at Societe Generale, was cited by the BBC as saying, “We weren’t really expecting her to signal a hike at the September meeting, but she’s just kept the door open for a hike sooner rather than later”.
Apart from December, the Fed also has policy meetings scheduled in September and November, although prices for Fed funds futures imply investors see chance of a rate increase at either of those meetings.
The policymaking Federal Open Market Committee held the rate at between 0.25 percent and 0.5 percent at its July meeting.
Asked on CNBC whether a rate hike in September and more than one policy tightening before year end should be expected, Fischer said Yellen’s comments were “consistent with answering yes” to both questions, albeit still data-dependent.
At the time, the Fed foresaw four additional rate increases in 2016. The group of policy activists, labor unions and community groups has been lobbying the Fed to keep rates low to allow the economy to strengthen enough to benefit more Americans. That was when it raised its benchmark lending rate from near zero, where it had been since the depths of the financial crisis in 2008.
Instead she argued that the main tools in the Fed’s box – bond-buying and statements about the likely path of rates, known as forward guidance – remain adequate.
Despite a chorus of hawkish comments from Fed officials in recent sessions, currency speculators trimmed bets on the dollar for a fourth straight week in the week ended August 23, reducing net dollar-long positions to their lowest since early July.
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By the close of trading, seven of the 10 sectors of the Standard and Poor’s 500 index had fallen, led by a 2.1 percent drop in utilities.
