Still Yellen declined to hint at whether the Fed might raise rates at its next policy meeting, September 20-21, or at its subsequent meetings in early November and mid-December.
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“As ever, the economic outlook is uncertain, and so monetary policy is not on a preset course”, Yellen said.
Rob Carnell, chief global economist at ING Bank, said: “Markets are still reluctant to buy into a September rate hike story, at least without more information on the evolution of jobs growth, the pace of economic activity, or higher inflation”.
THE QUOTE: “Who would think the Fed would raise interest rates two months before a very important election and with economic growth that has been back and forth and back and forth for years?” said Bruce Bittles, chief investment strategist at R.W. Baird.
In a jam-packed United States data day, preliminary GDP growth quarter-over-quarter for the second quarter was in-line with forecasts at 1.1 percent.
Making its first hike in almost a decade, the US Federal Reserve raised rates last December, but has avoided further increases so far this year owing to the continuing global economic slowdown and volatility in major financial markets. The Fed put interest rates at zero in December 2008.
In the USA, all 10 major S&P 500 sectors were higher.
But low rates were also a key reason behind the stock market’s strong rally over the last seven years.
But policy makers quickly veered off this course early this year, fearing that the U.S. economy was growing more weekly than they had foreseen and global risks, especially from China and Europe, had risen.
Yellen earlier this year had said Britain’s surprise June vote to exit the European Union had been one factor causing the Fed to forestall an increase in rates.
Dr Yellen told a monetary policy conference that the case for a rate increase has strengthened in recent months. But he said that would depend on the strength of forthcoming economic data.
After today’s remarks, there is now an increasing possibility that the Fed may even act as early as the meeting in September or October.
Futures markets late on Friday priced in a 36 percent chance that rates will rise in September, from 24 percent right after Yellen’s comments, according to the CME’s FedWatch.
The Fed chair on Friday defended the extraordinary tools the central bank has used to support the economy since the 2007-2009 Great Recession.
Still, Yellen has left a room open for prolonging her inaction on the rate front by saying that future data releases will set the direction. The 2-year is the most Fed sensitive part of the curve.
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Expectations for the banks had been set low, said Kinsey.
