“Probably the conditions will be satisfactory for at least one more” rate increase this year, the Atlanta Fed president said.
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Markets hope Yellen will provide some guidance in her remarks to the annual global bankers’ symposium in Jackson Hole, Wyoming later Friday. She said that business investment remains “soft”, however, due to low foreign demand and the strength of the dollar, which hurts exporters.
“Our decisions always depend on the degree to which incoming data continues to confirm the [Fed’s] outlook”, she said.
If the Fed does move the short-term rate this year, most analysts expect that longer-term mortgage rates will rise off near historic lows, but other factors are also working to keep mortgage rates down.
Despite their repeated intentions to raise the rate again, officials have skipped a hike at all five meetings this year, and futures markets have priced in about a 30 percent chance of another increase next month, the second-to-last gathering before presidential elections in November.
The Fed raised rates in December for the first time in almost a decade and projected another four hikes in 2016, only to scale that back to two moves in the wake of a global growth slowdown, financial market volatility and slow progress in meeting its 2 per cent inflation goal.
Such uncertainty, she said, is inherent in the inability to predict economic shocks.
USA stocks earlier surged as investors focused on Federal Reserve Chair Yellen’s comments on the economy and signaled more skepticism that Federal Reserve officials will follow through with interest-rate increases. They joined New York Fed chief William Dudley and his San Francisco counterpart John Williams who signaled last week a rate increase could be on the table in coming months. In sum, Yellen opened the door for a September rate hike with the same hedges she’s used in the past. A number of observers, some economists and investors among them, believe the odds are higher for a rate increase at the December meeting or in 2017.
Iran had also said late last week that it would only cooperate in upcoming producer talks in September if other exporters recognised Tehran’s right to regain market share lost during worldwide sanctions that were only lifted in January.
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.
He was also surprised by the chair’s comment that the Fed might want to “explore the possibility of purchasing a broader range of assets” in a future downturn.
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In advance of Yellen’s speech Friday, several Fed officials met Thursday with about 120 activists from the Campaign for Popular Democracy’s Fed Up coalition.
