Yellen brought up the recent minutes for June’s meeting that showed many were divided on the issue of raising rates.
Advertisement
The Chair of the Federal Reserve signaled that a rate hike this year is still on the table.
Yellen told the gathering of central bankers from around the world the US economy was nearing the central bank’s goals of maximum employment and price stability but she maintained that future hikes should be “gradual”.
But Yellen was vague on timing.
Futures indicated about a 24 percent chance the central bank will raise rates when it meets in September and a 53 percent probability of a hike by December, according to data compiled by Bloomberg.
Gaffney also noted that Yellen said policy remains data-dependent, and hinted that the Fed would consider the impact of higher rates on the dollar’s appreciation, which hurt exporters and manufacturers a year ago.
“Investors are struggling to find anything new in the speech and that maybe by-design by Yellen”.
There were positive elements in the report though, said currency strategist Vassili Serebriakov of Credit Agricole in NY.
“It was completely in line with most expectations”, Drilling said in an interview.
But low rates were also a key reason behind the stock market’s strong rally over the last seven years.
“While they said the same thing, Fischer’s comments were delivered in a more hawkish fashion than Yellen’s”, said Ryan Larson, head of US equity trading at RBC Global Asset Management in Chicago.
She also pointed out that not all market conditions are ideal, and some things continue to work against the notion of raising rates.
Stocks didn’t react much to Yellen’s comments on Friday.
The dollar index, which measures the currency against a basket of six major counterparts, was little changed at 94.75.
While Fed policy has been credited with helping unemployment fall to levels seen prior to the downturn, trillions of dollars of quantitative easing and eight years or zero or near-zero rates have failed to spark a rebound in economic growth.
“While economic growth has not been rapid, it has been sufficient to generate further improvement in the labor market”.
At the time, the Fed foresaw four additional rate increases in 2016.
Currently, the Fed projects it will raise rates twice this year, though Fed officials have only been talking about one increase in recent weeks.
The markets began adjusting before Yellen’s speech, and now believe a rate hike could be around the corner.
“Yellen succeeded in leaving the door open to nearly anything”, says Kathy Jones, chief fixed income strategist at Charles Schwab.
Advertisement
Rob Carnell, chief global economist at ING Bank, said: “Markets are still reluctant to buy into a September rate hike story, at least without more information on the evolution of jobs growth, the pace of economic activity, or higher inflation”.
