Bank of Canada Governor Stephen Poloz is attending the annual economic policy symposium in Jackson Hole at which Yellen is speaking, but will not have a speaking role, a spokesperson for the central bank said earlier this week. The group of policy activists, labor unions and community groups has been lobbying the Fed to keep rates low to allow the economy to strengthen enough to benefit more Americans. Now, the sentiment is that the rate hike could occur as early as September, although some think the Fed will wait until December, until after the USA presidential election.
Advertisement
She also noted that while inflation is still running below the Fed’s 2 percent target, it’s being depressed mainly by temporary factors.
Many forecasters predict that the next rate increase will come in December, but investors are less convinced.
The Fed chair on Friday defended the extraordinary tools the central bank has used to support the economy since the 2007-2009 Great Recession.
In an interview with CNBC after Yellen’s speech, Fischer, the central bank’s No. 2 official, said the Fed chief’s comments were a sign of how close policymakers could be to raising rates if data kept pointing to a good economic outlook.
The employment numbers could show more progress following two consecutive strong labor reports.
But other signals suggests that the economy remains sluggish. Traders are now pricing in a 63.7 percent likelihood of a hike in December, up from 51.8 percent Thursday.
Gaffney also noted that Yellen said policy remains data-dependent, and hinted that the Fed would consider the impact of higher rates on the dollar’s appreciation, which hurt exporters and manufacturers previous year.
“A number of [Yellen’s] colleagues, including Vice Chair Stanley Fischer, have recently said or hinted that the conditions are generally supportive of a rate increase in the months remaining this year”, Hamrick said by email.
The headlines caused a knee-jerk reaction in various markets, he said.
Gold, along with other commodities, is particularly sensitive to rate hikes.
While Fed policy has been credited with helping unemployment fall to levels seen prior to the downturn, trillions of dollars of quantitative easing and eight years or zero or near-zero rates have failed to spark a rebound in economic growth.
The Dow Jones industrial average fell 79.58 points, or 0.43 percent, to 18,368.83, the S&P 500 lost 7.4 points, or 0.34 percent, to 2,165.07 and the Nasdaq Composite dropped 10.47 points, or 0.2 percent, to 5,201.73.
A split within the Fed over whether to hike rates soon or take a more cautious approach also has muddied the waters. But as interest rates are already low, the Fed may not be able to lower them as far as it might have in the past.
Another official report showed that British business investment increased in the three months to June, marking the first growth since the third quarter of a year ago.
Advertisement
Yellen is expected to weigh in on Williams’s ideas in her talk.
