In December, the Fed raised its benchmark rate modestly in response to a brighter economic picture, notably a job market nearing full health. At the beginning of the year, the Fed projected it would raise rates four times this year. An increase at the Fed’s December meeting is seen as more likely if the USA central bank raises rates once this year. Fed funds futures, which move inversely to where traders see the fed funds rate, traded in a tight, choppy range.
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Two close Yellen allies – William Dudley, president of the Federal Reserve Bank of NY, and Stanley Fischer, the Fed’s vice chairman – suggested in the past week that a strengthening economy would soon warrant a resumption of the rate hikes the Fed began in December.
The most influential movers on the index were gold stocks, including Barrick Gold, which rose 2.3 percent to C$24.2, and Franco Nevada Corp, up by the same margin to C$95.81.
Data released earlier on Friday, however, showed the economy was more sluggish than initially thought in the second quarter, with gross domestic product expanding at a 1.1% percent annual rate.
Yellen is offering a generally upbeat assessment of the economy in a speech to a conference of central bankers in Jackson Hole, Wyoming.
About the economy, Yellen repeated what she has said several times before. Since investors earn very little interest on safe investments like USA treasury bonds, the Fed’s policy may have caused investors to take more aggressive risks.
Bonds then resumed weakening after Fed Vice Chair Stanley Fischer said Yellen’s speech was consistent with expectations for possible interest rate increases this year. This past week, the 30-year fixed rate remained stable, averaging 3.43 percent through Wednesday, which was 41 basis points lower than the year earlier level, Freddie Mac reported.
But after sharp swings, the U.S. dollar was flat against the euro at $1.1286 and slightly lower against the yen at 100.28 yen.
Yellen said if future Fed leaders kept rates near zero “they might inadvertently encourage excessive risk-taking and so undermine financial stability”. 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.
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However, going forward, she said the Federal Open Market Committee (FOMC) expected a moderate GDP growth and an improvement in the labour market.
