The upbeat assessment of the USA economy came Friday during a much anticipated speech by Fed Chair Janet Yellen in Jackson Hole, Wyoming.
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USA economic growth in the second quarter was a bit more sluggish than initially thought as businesses aggressively ran down stocks of unsold goods, offsetting a spurt in consumer spending. She acknowledged that inflation continues lag the Fed’s 2% target, a state of affairs she blamed “in part on the transitory effects” of lower energy and import prices.
Yields declined, led by longer maturities, after Yellen said in a speech in Jackson Hole, Wyoming, that policy makers “anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives”.
She devoted much of her speech to outlining how the Fed may deal with recessions now that an aging population, weak investment and other dynamics appear to be slowing economic growth and keeping interest rates lower.
Some economists have said they think conditions are ripe for the Fed to boost rates next month. And it’s very different from her tone after the June Fed meeting, when she was still looking for assurances from the labor market that the economy’s momentum hadn’t fallen off.
The US central bank last raised rates in December past year and will decide again on September 20 to 21.
USA gold futures for December delivery were up 0.1% at $1,322.34 U.S.
Traders prefer to invest or hold currencies in nations where interest rates are rising – or expected to rise – in the hope of increasing their potential returns.
Yellen delivered her remarks at a conference hosted by the Kansas City Federal Reserve Bank in Jackson Hole, Wyo.
Prices for fed funds futures implied investors saw about even odds that the Fed will raise ratesin December, largely unchanged from before Yellen’s remarks.
“Yellen said the case for raising rates has strengthened of late but gave no fresh indication about the key question hanging over markets – will the Fed hike in September?”
Meanwhile, the dollar edged down and global shares slipped to a two-week low as investors turned cautious before a keynote speech by Yellen that could map out a clearer path for USA interest rates. But she said those options would require more study. Expectations were fuelled by comments from several senior members of the US Fed till Friday’s annual event.
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Speculation has grown that the bank could lift interest rates as early as next month, although most experts say that is unlikely and that December or February would be safer bets.
