Fischer’s comments came shortly after Fed Chair Janet Yellen said the case for increasing interest rates had strengthened, but did not indicate when the Fed would raise rates. Still, second-quarter GDP growth was revised down a tick to 1.1% on Friday, giving the Fed leeway to hold off on hiking rates prior to the November election. Although the bank signaled more rate hikes this year, there has been none so far, as it pointed to risks in the USA economy.
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Speaking as the market wonders when the Fed will resume a policy tightening that began in December, Yellen issued some cautionary tones, but pointed to more increases on the horizon.
Thereafter, he added her views “didn’t necessarily offer much in the way of surprises but it did confirm one thing – there is now a clear and public hawkish consensus building within the Fed and Chair Yellen is on board” with regard to guidance on monetary policy.
But the Fed “continues to anticipate” that gradual increases in the federal funds rate will be appropriate with moderate economic growth, additional strengthening in the labor market and inflation rising to 2 percent over the next few years, Yellen said.
Mirroring the market’s swings, the CBOE Volatility index, known as Wall Street’s “fear gauge”, was trading at a 7-week high of 14.15, up 9.2 percent.
Yellen, speaking at an global gathering of central bankers and academics in Jackson Hole did not say when the USA central bank would raise borrowing costs, and investors remained skeptical that such a move was imminent. It also has a meeting in early November, however, it’s unlikely the Fed would raise rates right before the US elections.
At 10:24 a.m. EDT the Dow Jones Industrial Average was up 104.33 points, or 0.57 percent, at 18,552.74.
But she did not give guidance on what the central bank needs to see before raising rates.
Futures markets late on Friday priced in a 36 percent chance that rates will rise in September, from 24 percent right after Yellen’s comments, according to the CME’s FedWatch. But many within the bank still think another hike is warranted at some point. The dollar inched down 0.1 percent to 100.44 yen. For December, the odds rose to more than 60 percent, from 57 percent Friday morning. That was down slightly from the 1.2 percent rate reported last month.
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BOND REACTION: U.S. government bond prices rose slightly following Yellen’s speech, suggesting investors aren’t anxious about rates increasing soon.
