Federal Reserve Chairwoman Janet Yellen’s speech to the Jackson Hole summer retreat was “consistent” with a possible two rate hikes this year, her top deputy said Friday.
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Yellen said the economy was nearing the central bank’s goals of maximum employment and price stability, but she maintained that future hikes should be “gradual”.
The Fed leader sought to place new emphasis on her own uncertainty about the longer-run outlook for rates.
The metal has slid for five straight days, falling on Thursday after USA jobless and durable-goods data beat forecasts, and Kansas City Fed President Esther George said it was time for the Fed to raise rates gradually.
This suggests that the Fed is actually in no real hurry to raise rates, a view that is supported by the way in which the U.S. central bank has shied away from raising borrowing costs in the first half of 2016 amid disappointing data.
Since 2008 the Fed kept rates close to zero, but pushed them up by 0.25 percent in December 2015.
Yellen, speaking at a conference in Wyoming on Friday, said the case for raising interest rates has strengthened given improvements in the economy.
“We think most officials will want to see more concrete evidence of a rebound in GDP growth and a rise in inflation towards the 2 percent target, with a December move still appearing the most likely outcome”, said Andrew Hunter, an economist with Capital Economics.
But falling oil prices, China’s slowdown, rocky stock markets and the United Kingdom’s vote to leave the European Union – Brexit – forced the Fed to revise its plans, not to mention warning signs like the May jobs report.
Wall Street reversed course to trade lower on Friday afternoon after hawkish comments from Federal Reserve Vice Chair Stanley Fischer raised the specter of a rate hike as soon as next month. It has a meeting scheduled for November, just before the USA elections, but is seen as unlikely to do anything that could rattle markets at that time.
The Fed raised rates in December, its first hike in almost a decade, but it has held off further increases so far this year due to a global growth slowdown, financial market volatility and generally tepid United States inflation data.
Truly, in terms of making her pronouncements cryptic, the most powerful central banker in the world is the daughter and heir to her predecessor but one, Alan Greenspan.
Yellen also said that the Fed could consider buying assets beyond the government bonds and mortgage-backed securities it purchased to prop up the economy.
There was a case for fiscal policy and infrastructure investment in order to boost productivity, but those decisions were the remit of Congress and the President, he said. The odds before Yellen spoke stood at 18%.
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Stocks ended mostly lower on Wall Street, giving up a modest gain from earlier in the day after Fed Chair Janet Yellen gave an upbeat assessment of the economy. The bank’s chief risk officer said Thursday the bank has made changes to its mortgage underwriting practices in recent years, potentially making it more resilient if house prices fall in Vancouver and Toronto.
