Federal Reserve Chairperson Janet Yellen told the Congress that policymakers were likely to raise interest rates this year.
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“The fact that the Fed feels comfortable raising rates even with what’s going on globally and in lieu of weak retail data that we saw yesterday shows that the economy is healthy”, said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.
Instead, overall financial conditions are just one factor in the economic forecast that the Fed uses in setting interest rates and conducting monetary policy, she said. While the unemployment rate has fallen to 5.3 percent in June from 10 percent in 2009, a large number of workers have simply stopped looking for jobs. “Thus, while labor market conditions have improved substantially, they are, in the FOMC’s judgment, not yet consistent with maximum employment”, she said.
Despite officially ending in June 2009, the recession left millions unemployed for prolonged spells, particularly minority groups.
The dollar index, which measures the greenback against a basket of six major currencies, rallied to a more than seven-week high of 97.756 on expectations that the Fed will hike rates this year.
Prices were pressured by upbeat USA economic data and comments from Federal Reserve Chairwoman Janet Yellen, which indicated a likely interest-rate increase later this year.
She also noted solid gains in consumer spending, auto sales and home construction.
Yellen listed foreign developments as key uncertainties that could weigh on USA growth.
“The situation in Greece remains hard”, she said. He said the central bank failed to comply with document requests from the panel in connection with the leak. Her appearance before the House of Representatives Financial Services Committee on Wednesday was marked by more aggressive questioning focused on transparency and congressional oversight of the central bank.
“Not only did Yellen confirm that rates will rise this year but it is her view that waiting too long would mean rates would have to rise at a faster pace later”, Kathy Lien, managing director of FX Strategy for BK Asset Management, wrote.
Higher interest rates should further boost the dollar and U.S. treasury yields, both of which are traditionally bad for gold. The Fed has refused to provide some information, citing an investigation by the Justice Department, a position Hensarling has described as “willful obstruction”.
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“With Greece out of the way, the market is returning to trading on other themes, and those are the decline in oil prices and a stronger dollar”, Rajan said.
