USA government bonds reversed earlier gains Friday after Federal Reserve Chairwoman Janet Yellen signaled that US interest-rates are likely to rise soon.
Advertisement
Yellen did not indicate when the US central bank might raise rates in her speech on Friday at a meeting of central bankers in Jackson Hole, Wyoming. Though she did not cite when a rate hike might come, she believes “the case for an increase in the federal funds rate has strengthened in recent months”.
She also noted that while inflation is still running below the Fed’s 2% target, it’s being depressed mainly by temporary factors.
This conviction runs counter to a week of relatively hawkish comments from Fed officials and Yellen’s own statement at Jackson Hole: “I believe the case for an increase in the federal funds rate has strengthened in recent months”.
ONE MAN’S VIEW: “We’ve been in a bit of an earnings recession”, said Thomas Wilson, senior investment manager at Brinker Capital, but stocks are holding near record highs because financial analysts expect earnings to “go up” toward the end of the year.
She failed, however, to provide any timing as to when the central bank would raise rates.
The job market is humming, and so are the US financial markets, with major stock indexes near record highs.
Some economists have said they think conditions are ripe for the Fed to boost rates next month.
Gaffney also noted that Yellen said policy remains data-dependent, and hinted that the Fed would consider the impact of higher rates on the dollar’s appreciation, which hurt exporters and manufacturers previous year.
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.
“Our decisions always depend on the degree to which incoming data continues to confirm the [Fed’s] outlook”, she said.
BOND REACTION: After initially rising after Yellen’s speech, USA government bond prices fell.
Fischer said it was still possible that the Fed could raise rates twice before year’s end.
A split within the Fed over whether to hike rates soon or take a more cautious approach also has muddied the waters. She said solid growth in household spending had led to an expansion of the United States economy.
Krishna Kumar Karwa, MD and CFO, Emkay Global Securities, said the Fed chief’s statement was along expected lines.
Advertisement
Yellen appeared just before her 10 a.m. EDT speech, flanked by Fischer and New York Fed President William Dudley. So the question is: are you taking a lot of risk there?
