A split within the Fed over whether to hike rates soon or take a more cautious approach also has muddied the waters. By the end of next year, she and her colleagues believe their benchmark interest rate – which now floats between 0.25 and 0.5 percent – could realistically be anywhere from 0 percent to 3.25 percent.
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U.S. Treasuries slumped as investors evaluated whether the Fed is likely to raise rates in September. Eastern time. The Standard & Poor’s 500 index added 9 points, or 0.5 percent, to 2,182.
Meanwhile, the Fed is wrestling with more existential questions about the economy, including whether the slow growth that has dogged the recovery for the past seven years is here to stay. Some say that if she doesn’t raise the topic, it could signal less chance of a September rate rise, because she would want to give the market some advance notice if that might be in the cards.
Hawks, on the other hand, have said rates need to gradually rise to put the USA economy back on a more normal footing and fend off any potential inflation that might loom in the wake of recent strong job and wage growth.
The U.S. economy grew at an annual rate of 1.1 percent in the second quarter this year, down from a previous estimate of 1.2 percent, the Commerce Department said Friday.
The job market is humming, and so are the USA financial markets, with major stock indexes near record highs.
“Yellen seems to have developed into the ultimate “status quo”-chair”, said Lars Christensen founder and owner of Markets and Money Advisory, an independent firm focused on monetary policy issues”.
The market’s tepid reaction suggests that investors may have priced in the likelihood of an interest-rate increase, though few expect it to occur at the Fed’s September meeting.
Thereafter, he added her views “didn’t necessarily offer much in the way of surprises but it did confirm one thing – there is now a clear and public hawkish consensus building within the Fed and Chair Yellen is on board” with regard to guidance on monetary policy. The Nasdaq composite dipped 10 points, or 0.2 per cent, to 5,203.
The Fed can increase the interest rates by raising the federal funds rate, which is the rate at which banks lend to each other on a short-term basis.
Yellen’s speech on Friday notwithstanding, not everyone is convinced a rate hike is coming soon.
In company news, Herbalife fell 4.7 percent to $59.04 after a report said Carl Icahn, the nutritional supplement maker’s top shareholder, was looking to sell his stake.
PROFIT PICTURE: Earnings per share for companies in the S&P 500 index are expected to fall 1.8 percent in the second quarter, according to S&P Global Market Intelligence. The largest ETF tied to long-term USA government bond interest rates has risen 15% since the start of 2016.
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Gold futures (http://www.marketwatch.com/story/gold-rises-as-yellen-looms-but-on-track-for-weekly-loss-2016-08-26) settled up 0.1% at $1,325.90 an ounce, while the U.S. Dollar Index rose 0.6% to 95.37.
