Asian stock markets were mixed Friday, with investors preferring to sit on the sidelines ahead of U.S. Federal Reserve Chairwoman Janet Yellen’s speech for cues on the timing of the next policy rate hike.
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Analysts said it’s possible for the Fed to hike interest rates as soon as September.
The Fed raised rates for the first time in almost a decade last December, from around zero to between 0.25 per cent and 0.5 per cent, but has kept them there ever since.
Stocks fell Friday after a number of Federal Reserve officials said it is nearly time to raise interest rates.
After Yellen’s speech, data from the CME Group indicated that investors foresee only a 24 percent probability of a rate hike in September and about a 58 percent chance by December.
Longer-dated Treasury yields declined after Chair Yellen’s remarks largely as a result of the continued discussion of near-term policy tightening which caps any sustained increase in longer-dated breakeven rates of inflation. At the same time, inflation has run shy of the Fed’s stated 2% target.
Making its first hike in almost a decade, the US Federal Reserve raised rates last December, but has avoided further increases so far this year owing to the continuing global economic slowdown and volatility in major financial markets.
Yellen’s synopsis of U.S. economic activity was notably optimistic, despite the fact the services sector posted unimpressive growth in August the day before.
“Most global currencies are down against the USA dollar”, he said.
Citing positive economic data, Fed chair Janet Yellen said the central banking system is moving in the direction of higher interest rates but offered no hint as to when that would happen. That report “will probably weigh in our decision”, Fischer said. But many within the bank still think another hike is warranted at some point.
Hunter pointed to a government report Friday that the economy, as measured by the gross domestic product, grew at an anemic 1.1 percent annual rate last quarter as evidence that the Fed likely wants to see stronger growth.
Yellen said if future Fed leaders kept rates near zero “they might inadvertently encourage excessive risk-taking and so undermine financial stability”.
Her assessment was more straightforward than Fed pronouncements at previous meetings, which had taken note of the mixed economic picture of relatively low inflation and weak productivity.
Oil – at times the most severe of all markets in the past two years – has slumped in the days leading up to the speech.
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Fed policymakers have been struggling in their attempt to push rock-bottom interest rates closer to normal as the recovery from the Great Recession matures. As of June, for example, the median estimate among them for the federal-funds rate at the end of 2017 was 1.625% and the median estimate for 2018 was 2.375%.
