She also reiterated that the decision on interest rates will “always depend on the degree to which incoming data continues to confirm the Fed policy committee’s outlook”. Dudley had said last week a rate hike was possible soon, maybe even in September, and Fischer had said the Fed was close to meeting its objectives.
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But Yellen is confident about economic growth and inflation reaching the bank’s target rate.
In December, the Fed raised its benchmark rate modestly in response to a brighter economic picture, notably a job market nearing full health. It had been kept near zero since the recession. “Our ability to predict how the federal funds rate will evolve over time is quite limited because monetary policy will need to respond to whatever disturbances may buffet the economy”, she explained. “It’s been incredibly frustrating to financial markets”.
Belisle said he was surprised to see that reaction as there was no dovish surprise from the speech. Although the bank signaled more rate hikes this year, there has been none so far, as it pointed to risks in the USA economy.
Belisle said the majority of investors expecting a raise in the rate before the end of the year.
“Based on this economic outlook, the FOMC continues to anticipate gradual increases in the federal funds rate will be appropriate over time”.
Some economists have said they think conditions are ripe for the Fed to alert investors that it may be inclined to act at its next policy meeting, September 20-21.
The Fed also has policy meetings scheduled in September and November, with prices for fed funds futures implying investors see much lower chances of a rate increase at either of those meetings.
Such a view is “exaggerated”, Yellen said, because the Fed will be able to use bond purchases and forward guidance to ease conditions.
But to combat future downturns, she said the Fed should explore other options, too.
“It was completely in line with most expectations”, Drilling said in an interview.
“But after digging into the meat of her speech it became clear that she really wasn’t saying anything new”, said Chris Gaffney, president of world markets at EverBank, in a note. She said efforts need to be made, in particular, to boost the productivity of US workers.
While U.S. economic growth has not been rapid, it has been “sufficient to generate further improvement” in the labor market, Yellen noted, adding that job gains averaged 190,000 over the past three months.
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The dollar held steady against the euro on Friday, leaving it little changed on the week, as investors focused on Yellen’s speech. Low rates are a boon for gold, which becomes more competitive against interest-bearing assets.
