Following her speech, 2 year treasury yields climbed more than 4 percent signaling that the markets are becoming more certain of a rate hike by the end of the year.
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On average, the probability for a December rate hike was 80 percent.
The Fed has been expecting that the economy will continue to grow at a pace sufficient to generate further improvements in the labor market and to push inflation up, Ms Yellen said in response to questions following testimony before the House Financial Services Committee.
“We think the Fed does raise interest rates in December, but it is going to be somewhat of a close call and it depends on how the data comes in between now and then”, said David Lefkowitz, senior equity strategist for UBS wealth management.
“Fed officials want to keep the December rate possibility open and the relation between gold prices and monetary policy expectations is very high”, ABN Amro analyst Georgette Boele said. The Standard & Poor’s 500 index fell 0.4 percent to 2,102.31 and the Nasdaq composite 0.1 percent to 5,142.48. Her comments led to a strong move in the front-end of the yield curve as the two-year yield jumped five basis points to its highest level this year at 0.816%.
Higher rates increase borrowing costs for companies, while a rise in the dollar hurts their income from overseas markets. Economists polled by Reuters had forecast nonfarm payrolls increasing 180,000 last month and the unemployment rate unchanged at 5.1 per cent. Non-interest-paying gold could see demand take a hit from higher rates. Platinum was down 0.1 percent at $951.50 an ounce and silver lost 0.3 percent at $15 an ounce.
Yellen’s comments come after the Fed did not raise interest rates last week, but it did scale back its concerns about how much the global economic slowdown will be a drag on the USA economy.
CURRENCIES: The US dollar advanced against other major currencies following the jobs numbers.
Investors are now awaiting the USA employment report, due on Friday, which could provide a crucial sign of the health of the American economy and a clue for the direction of the Fed.
Gold languished near an eight-week low on Friday and was set to post its biggest weekly drop since July as investors positioned themselves for a possible USA rate hike this year, pulling money out of bullion funds. “The market now prices a 58 per cent chance of a December hike”.
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Solid payrolls data later in the session could seal the case for a December rate hike.
