NEW YORK, May 27 The U.S. dollar index hit two-month highs on Friday after Federal Reserve Chair Janet Yellen left the door open to an interest rate increase in the coming months.
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“Growth looks to be picking up from the various data that we monitor and if that continues and if the labour market continues to improve – and I expect those things will occur, we’ll continue to monitor incoming data and also we’ll assess risks to the outlook”, she said.
Yellen’s is the most important voice in a chorus of policymakers recently suggesting that the U.S. economy has improved enough to warrant tighter borrowing costs, with a growing number of investors now expecting a hike next month or in July.
The strength of U.S. hiring will be the “deciding factor” in whether the Federal Reserve raises its interest rates next month, as policymakers weigh up an increase for only the second time since the financial crisis.
The Fed raised its key policy rate for the first time in almost a decade in December, pushing the rate from a record low near zero to a range of 0.25 percent to 0.5 percent.
On Friday, U.S. economic growth for the first quarter was revised up slightly to 0.8% from 0.5%. The S&P 500 added 8.96 points, or 0.43 percent, to 2,099.06.
On future monetary policy – what most people were really listening in to hear about – Yellen said a rate hike in the coming months may be appropriate.
Further progress though is possible, Yellen said, pointing in particular to the large numbers of people working part-time who would prefer full-time employment.
Jeffrey Gundlach, the chief executive of DoubleLine Capital LP in Los Angeles, said on Thursday he expected Yellen would “be dovish” in her remarks. Expectations had risen to 24 percent before Yellen’s speech.
Fresh data that showed the U.S. economy grew in the first quarter at a faster pace than estimated also boosted the greenback at the backend.
Policy makers have been talking up the possibility of a rate increase next month, saying their June 14-15 meeting is “live”. That has caused markets to bring forward their expectations for a June increase.
“Until today we hadn’t officially heard from the chair, and that left some doubt in the minds of some investors that she might not be on board with a rate hike in the near future”, Roberto Perli, a partner at Cornerstone Macro LLC in Washington, said in a note to clients.
She expects inflation to move back up to 2% objective as crude oil prices have steadied near $50 after plunging to $26 earlier in the year. She spoke before receiving the Radcliffe Medal in a ceremony at Harvard University.
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Yellen will address the World Affairs Council of Philadelphia at a luncheon event on June 6. “But we believe that the current squeeze on margins is already putting downward pressure on capital spending and hiring, and it leaves the business sector more vulnerable to other shocks that might arise”, writes JPMorgan economist Jesse Edgerton.
