Mumbai: Indian investors are unmoved by US Federal Reserve chair Janet Yellen’s speech on Friday where she hinted at an interest hike in the world’s largest economy with most market players saying a rate revision was unlikely in September.
Advertisement
“Looking ahead, the FOMC [Federal Open Market Committee] expects moderate growth in real gross domestic product, additional strengthening in the labor market, and inflation rising to 2 percent over the next few years”, she said.
“US economy was nearing the Federal Reserve’s statutory goals of maximum employment and price stability”, she told the audience.
The upbeat assessment of the USA economy came Friday during a much anticipated speech by Fed Chair Janet Yellen in Jackson Hole, Wyoming.
By raising the interest rates, the Fed would make it more expensive to borrow money and more profitable to lend money.
The Fed raised its target range for the federal funds rate by 25 basis points to 0.25-0.5 percent in December past year, the first rate hike in almost a decade.
Yellen, on Friday, did not lay out a clear roadmap for raising rates at a conference that world markets were keenly watching for clues about the timing of the next USA rate announcement.
Yellen’s speech comes after some colleagues have been fairly upbeat in their assessments of the economy, which could mean they’re eager to lift rates in the coming months. But she stopped short of signaling any timetable for the next rate hike.
And in our view, Yellen sent a similar message to markets today – making an official rate hike at the upcoming September Fed meeting a very high probability (barring a surprising slump in August payrolls). Still, second-quarter GDP growth was revised down a tick to 1.1% on Friday, giving the Fed leeway to hold off on hiking rates prior to the November election.
Atlanta Fed President Dennis Lockhart also said on Friday that two rate hikes were possible this year, and Cleveland Fed President Loretta Mester argued for a hike soon to avoid falling behind the curve on inflation. That is the equivalent of quarterly growth of between 0.25 per cent and 0.3 per cent – less than half the 0.6 per cent growth rate seen in the UK. The Nasdaq edged up 6 points, or 0.1 percent, to 5,218.
That report showed US growth in the second quarter was slightly lower than previously thought, rising at a 1.1 percent annual rate.
Spot gold rose 1.3 percent as the US dollar lost ground despite Yellen’s comments.
Advertisement
She contended that the Fed’s toolkit has proven effective, as the central bank was able to adequately manage its rate target since raising rates in December. Benchmark 10-year notes were down 16/32 in price to yield 1.63 percent, the highest since June 24, and up from 1.56 percent before the comments.
