Yellen’s rate hike endorsement was just what the currency market was looking for to take the already-bullish dollar yet higher after a recent run of upbeat USA economic indicators and comments from top Fed officials that supported a near-term tightening.
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Members of the U.S. Federal Reserve may be bracing financial markets for a possible rate hike, and the indications are it could happen soon.
The Fed raised its key benchmark interest rate in December for the first time in almost a decade, but has held off since then due to concerns earlier this year about a global economic slowdown and financial market volatility.
“I have been told that a bunch of money managers in NY have delayed their trip to the Hamptons this afternoon, so that they could listen to you talk here today in case you move markets”, Greg Mankiw, a professor of Economics at Harvard University, told Yellen to laughter from audience. “So this is your chance to move markets”.
“Let me say a few sentences so I won’t delay them very long”, said Yellen, to more laughter. She spoke before receiving the Radcliffe Medal in a ceremony at Harvard University.
The Commerce Department reported Friday that gross domestic product rose at an annualized rate of 0.8% in the three months to March, up from the initial estimate of 0.5%.
GameStop fell 7.6 percent to $27.70 after the video-game retailer forecast lower-than-expected revenue and profit for the current quarter. It’s the latest sign of economic weakness in China, where growth slowed last year to a 25-year low of 6.9 percent and is expected to decelerate further this year. “Probably in the coming months such a move would be appropriate”. While she did not mention what those risks are, the Fed had previously focused on risks posed by Britain’s potential exit from the European Union, “Brexit”, and by the lingering uncertainty over China’s economy.
While higher interest rates choke liquidity in stock markets, many investors see a potential rate hike as a vote of confidence that the struggling United States economy is finding its legs.
Yellen said on Friday that the Fed should raise interest rates “in the coming months” if economic growth picks up and the labor market continues to improve.
The probability of a rate hike at the Federal Open Market Committee’s June 14-15 meeting rose to 34 per cent from 30 per cent before Yellen’s remarks, according to CME Group, where the futures contracts are traded.
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“If we were to raise interest rates too quickly and we trigger a downturn we have limited scope to respond”.
