Fresh data about employment and consumer confidence could help investors solidify expectations for a December interest rate hike from the U.S. Federal Reserve, or lend weight to a minority of strategists predicting a rate rise as early as next month. The forecast is for the unemployment rate to dip one-tenth of a percentage point to 4.8 percent.
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She also noted that while inflation is still running below the Fed’s 2 percent target, it’s being depressed mainly by temporary factors.
At a gathering of central bankers from around the world in Jackson Hole, Wyoming, Yellen said improvements in the US labor market and expectations for moderate growth have boosted the case for a rate rise. “Our decisions always depend on the degree to which incoming data continues to confirm the [Fed’s] outlook”, she added. “It doesn’t appear she’s pounding the table saying rates are going up next month”.
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.
Some economists have said they think conditions are ripe for the Fed to boost rates next month.
If the Fed fails to take any action concerning a rates hike in September, it has two more meetings this year, one in November right before US elections and another in December.
Markets remained skeptical of the Fed’s rate hike projections largely because of the perceived wide gap between what it has signalled and ultimately delivered.
Wall Street rose on Friday after Federal Reserve Chair Janet Yellen said the case for increasing interest rates had strengthened, but did not indicate when the Fed would raise rates.
“When we see progress toward 2 per cent inflation and a tightening in the labor market and growth strong enough to support all that, we should take the opportunity”, Powell said. “She suggests the economy is improving, but the GDP numbers for the past three quarters are closer to 1 percent than three percent”. Others say they foresee no action until December, after the elections, at the earliest. The rate had been kept near zero since the depths of the 2008 financial crisis.
Meanwhile, the Fed is wrestling with more existential questions, including whether the slow growth that has dogged the recovery for the past seven years is here to stay.
Janet Yellen yesterday declared that the case for another interest rate rise in the United States has “strengthened” – setting the scene for a hike before the end of the year.
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Lisa Kopp, senior vice president at U.S. Bank Wealth Management, said she wasn’t surprised by the selling given the “jitteriness” in the markets.
