She did not indicate when the USA central bank might raise rates.
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The Dow Jones Industrial Average lost 0.29 per cent while the S&P 500 dipped 0.16 per cent.
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.
YELLEN UPBEAT: Fed Chair Yellen said in a speech that the Fed is moving toward raising interest rates in light of a solid job market and an improved outlook for the US economy and inflation.
Some economists say they think Yellen will alert investors Friday that the central bank might be inclined to act in September.
The path of rate hikes next year is the big issue for investors.
The Fed raised rates in December for the first time in almost a decade and projected another four hikes in 2016, only to scale that back to two moves in the wake of a global growth slowdown, financial market volatility and slow progress in meeting its 2 per cent inflation goal.
The markets were satisfied by the lack of surprises in Yellen’s remarks, said Tim Drilling, regional investment director of U.S. Bank’s Private Client Reserve.
A U.S. interest rate hike would trigger a rise in the USA dollar. She acknowledged that inflation continues lag the Fed’s 2% target, a state of affairs she blamed “in part on the transitory effects” of lower energy and import prices.
The U.S. economy is “now nearing the Federal Reserve’s statutory goals of maximum employment and price stability”, Yellen said.
The Fed had at the end of 2015 raised rates for the first time in almost a decade, ending the policies created to respond immediately to the Great Recession.
“Markets will most likely be looking at Yellen to provide some kind of guidance or insight into the likelihood of the Fed’s potential policy tightening before the end of the year”, said dealer Sam Budd at Currencies Direct.
Traders since last week were betting that the Fed will not act at least by its December meeting because of a mixed economic performance, as the economy is creating more jobs than expected but inflation is showing a weak trend.
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In advance of Yellen’s speech Friday, George, Fischer and eight other Fed officials met Thursday with about 120 activists from the Campaign for Popular Democracy’s Fed Up coalition. Orlando believes the Fed is likely to hike next in December.
