USA stocks closed lower in choppy trading and the US dollar surged on Friday as investors grappled with the possible timing of an interest rate hike after comments from several Federal Reserve officials, including Chair Janet Yellen.
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Her comments suggest she expects a move at one of these meetings if the central bank doesn’t raise rates in September. The Fed has policy meetings scheduled in September, November and December.
Yellen told a gathering of central bankers from around the world in Jackson Hole, Wyoming, the USA economy was nearing the central bank’s goals of maximum employment and price stability but that future hikes should be “gradual”.
During the first half of 2016, the economy expanded at a lackluster 1% annual pace following growth of 2.6% previous year. At the same time, consumer spending, which makes up more than two-thirds of economic activity, grew at the fastest rate since the fourth quarter of 2014.
NEW YORK: US stocks were lower in a choppy session on Friday, with stocks bouncing between gains and losses as investors grappled with the possible timing of a US interest rate hike after comments from Federal Reserve officials, including chair Janet Yellen.
After today’s remarks, there is now an increasing possibility that the Fed may even act as early as the meeting in September or October.
The dollar jumped against the yen and euro on Yellen’s remarks before turning lower. USA stocks, which had been higher, then fell. The rate had been kept near zero since the depths of the 2008 financial crisis. She said current forecasts imply a 70 per cent probability they will be between 0 per cent and 3.75 per cent at the end of 2017.
“While economic growth has not been rapid, it has been sufficient to generate further improvement in the labor market”, Ms. Yellen said.
Yellen sketched a generally upbeat assessment of the economy in a speech to an annual conference of central bankers in Jackson Hole, Wyo.
A government report released today showed that the USA economy has expanded slower than previously estimated in the second quarter, as businesses are running down their inventories faster and state and local governments have reduced their spending.
Mr. Carstens said a Fed rate increase “might trigger some reactions from our side, but we will also respond to other determinants of inflation”. In the event of another downturn the Fed would be able to use bond purchases and forward guidance to ease conditions. 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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She also noted that while inflation is still running below the Fed’s 2% target, it’s being depressed mainly by temporary factors.
