Giving an upbeat take on the economy, Federal Reserve Chair Janet Yellen says the case for raising interest rates is getting stronger.
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This year’s fixture at Jackson Hole has the agenda of designing new monetary policy frameworks, with central bankers keen to find ways to stimulate economies even after they have cut rates to near zero levels. But she stopped short of signaling any timetable for the next rate hike. She pointed to steady gains in employment and strength in consumer spending. “Based on this economic outlook, the FOMC continues to anticipate gradual increases in the federal funds rate will be appropriate over time”.
The Commerce Department said Friday that the economy grew at a sluggish 1.1 percent in the second quarter, slightly less than the previously reported 1.2 percent.
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.
The US central bank last raised rates in December a year ago and will decide again on September 20 to 21.
Joel Naroff of Naroff Economic Advisors said USA policymakers could easily be dissuaded from increasing rates if skies darkened. According to a top fund manager, as of now, no one is expecting a September rate hike, while a December hike is too early to predict.
David Donabedian, chief financial officer of Atlantic Trust Private Wealth Management, said in a note that the market’s initially positive reaction may have been attributable to “her relaxed view on inflation”, which suggested “a very slow path toward higher rates”.
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”. But about 71 percent of 62 economists surveyed by the Wall Street Journal this month believed that the Fed will wait until December to raise rates. Since investors earn very little interest on safe investments like US treasury bonds, the Fed’s policy may have caused investors to take more aggressive risks.
“It was completely in line with most expectations”, Drilling said in an interview. She said the Fed still planned in the future to wind down its massive balance sheet but that it would take time, adding that the balance sheet was likely to be useful for policy for some time.
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Yellen appeared just before her speech, flanked by Fed Vice Chair Stanley Fischer and New York Fed President William Dudley.
