“Indian markets are expected to see a positive opening (On Monday) as the chances of a Fed Rate hike in September is off the table”.
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Gold extended gains above 1 percent, breaking a five-day streak lower after Federal Reserve Chair Janet Yellen said the case for raising US interest rates has strengthened, although increases should be gradual.
“Yellen’s statements reiterated the Fed’s belief that the U.S. economy is on its way to stable growth, low unemployment rate and moving close to the inflation target of two per cent”.
But some analysts argued that a rate hike as soon as September remains a distant possibility with incoming positive data more likely to increase hawkish rhetoric in the next few months before the central bank makes a move at year’s end.
Dr Yellen told a monetary policy conference that the case for a rate increase has strengthened in recent months. “Even if average interest rates remain lower than in the past, I believe that monetary policy will, under most conditions, be able to respond effectively”, she concluded.
In December, the Fed raised its benchmark rate modestly in response to a brighter economic picture, notably a job market nearing full health. Others say they foresee no action until December, after the elections, at the earliest.
San Francisco Fed chief John Williams was largely sympathetic but said delaying rate hikes could lead to a recession in later years.
“That will probably weigh in our decision, along with other data that may come in”, Fischer said in an interview on CNBC.
Fischer said it was still possible that the Fed could raise rates twice before year’s end.
“Over last two or three trading sessions as well, the likely direction US Fed will take on rate hikes has been an important factor for local markets”, said Pankaj Sharma, head of equities at Equirus Securities. Yellen explained that strong domestic consumption will drive the economy, when domestic and foreign investments are experiencing a downtrend, and if exports stalls due to the appreciation of the US Dollar.
“After more than a decade of economic disappointment, the central bank confronts hardened public scepticism and growing self-doubt about its own understanding of how the United States economy works”, the Wall Street Journal article said.
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Recent comments from the Fed speakers indicate that the policymakers are preparing the financial markets for a rate hike in the near term, said experts. To ease the impact of the recession, for example, she said the Fed had effectively used bond purchases to reduce long-term borrowing rates and had assured investors that short-term rates would stay low.
