Ms. Yellen did not give guidance on what the central bank needs to see before raising rates.
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Business investment as a share of gross domestic product since 2008 has averaged almost a full percentage point below the previous decade’s average, according to government data. Instead, she stressed, as she frequently has, that the Fed’s rate decisions will depend on whether the freshest economic data continues to confirm its outlook.
“Yellen seems to have developed into the ultimate “status quo”-chair”, said Lars Christensen founder and owner of Markets and Money Advisory, an independent firm focused on monetary policy issues”.
The last Fed rate increase came last December, marking the first in nearly a decade.
On the economic front, US real gross domestic product (GDP) increased at an annual rate of 1.1 percent in the second quarter of 2016, according to the “second” estimate released by the Commerce Department Friday.
For example, in tackling the 2008 financial crisis, Washington repeatedly used quantitative easing measures – the essence of the approach is first introducing a deluge of dollar cash to dilute the problem and then let it spread across the world. But others said December remains in their view the more likely time for a resumption of rate increases. But since then, global economic pressures, financial market turmoil and a brief slump in the USA job market have kept the Fed on the sidelines.
Atlanta Fed President Dennis Lockhart also on Friday said 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.
So we can expect the Fed’s monetary tightening to resume soon.
“She’s certainly tried to make a case, but the market doesn’t believe that the Fed is going to actually raise rates”, said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management.
Gold reacted positively to some worse-than-expected economic data released on Friday morning.
Yellen, speaking before a gathering of global central bankers in Jackson Hole, Wyoming, did not indicate when the Fed would raise rates, but said the central bank thinks future hikes should be “gradual”.
Some have said that if the Fed does decide to act in September, it would need to further prepare investors. There is a slightly higher chance of a rate hike happening in December, which may be marginally negative for India. Still, Yellen’s comments on the economy and what tools the Fed might consider using in the future will still have a significant impact on the foreign exchange markets.
The Bangko Sentral ng Pilipinas “will not necessarily have to move in sync with the Fed”, though it is mindful of near-term volatility, Governor Amando Tetangco said in a text message after Yellen’s speech.
“Investors are pulling funds from what now seems to be one of the most politically-sensitive industries in the run up to the United States presidential election”, CMC’s Lawler said in a note.
Yellen said that while the Fed’s support had been critical in supporting the economy, political leaders should considering using the government’s tax and spending powers as well.
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A stronger USA dollar usually weighs on gold, as it dampens the metal’s appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.
