The Fed’s committee next meets in late September.
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Making its first hike in almost a decade, the US Federal Reserve raised rates last December, but has avoided further increases so far this year owing to the continuing global economic slowdown and volatility in major financial markets.
After all, Yellen said in May that a rate increase would be appropriate over the summer months. She then changed course when the May jobs report was shockingly weak.
Still, the labor market has shown recent strength, with the USA creating an average of 190,000 net new jobs from May through July, she said. She pointed to steady gains in employment and strength in consumer spending.
“The speech from Janet Yellen. was the biggest thing moving the market today”, said Steve Belisle, a senior portfolio manager of equities at Manulife Asset Management. Orlando believes the Fed is likely to hike next in December. The 2-year is the most Fed sensitive part of the curve.
Fed policymakers have struggled to push rock-bottom interest rates closer to normal as the recovery from the Great Recession matures. Low interest rates made it easier for businesses to borrow money and hire new workers.
The reason markets have been so calm about the next rate hike is that investors don’t expect an ensuing hike until at least the fall of 2017.
“The case is strengthening” for a rate increase, Dallas Fed president Robert Kaplan told CNBC television, whose open-air studio here overlooks the craggy peaks of the Grand Teton National Park.
The U.S. currency rallied after Yellen’s speech but soon fell as investors digested some of its dovish details.
The S&P 500 index showed 29 new 52-week highs and one new lows, while the Nasdaq recorded 108 new highs and 18 new lows. Productivity growth has weakened sharply in recent years and has been a major factor in holding the economy back.
“We think most officials will want to see more concrete evidence of a rebound in GDP growth and a rise in inflation towards the 2% target, with a December move still appearing the most likely outcome”, said Andrew Hunter, an economist with Capital Economics. The Fed last raised rates nine months ago, the first time it had done so since the 2008 economic downturn.
Her speech comes as leading central banks have proven unable to convincingly reverse a broad economic slump, despite years of ultra-low borrowing costs and stimulus.
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“Yellen succeeded in leaving the door open to nearly anything”, says Kathy Jones, chief fixed income strategist at Charles Schwab.
