In an interview after the speech, Fed Reserve vice chair Stanley Fischer said Dr Yellen’s comments were consistent with expectations for possible interest rate hikes this year.
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In a speech at the central bank’s annual Jackson Hole Summit, Yellen did not indicate when the central bank would raise rates but pointed at increases in the horizon.
USA economic growth in the second quarter was a bit more sluggish than initially thought as businesses aggressively ran down stocks of unsold goods, offsetting a spurt in consumer spending.
Still, Yellen declined to say when a rate hike would happen, falling back on what has become a common refrain that the decision would be based on the latest economic data. According to data from the CME Group this week, investors foresee only about a 21 percent probability of a rate hike in September and only about a 52 percent chance by December.
The Dow was down 0.3%, or 49.93 points, to 18,398.48 at 1:11 p.m.
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”.
But she did not give guidance on what the central bank needs to see before raising rates.
Investors now see an 18 per cent probability that the Fed will raise rates at its September policy meeting and a 53 per cent chance of an increase in December, according to CME Group’s FedWatch tool.
The last time the U.S. central bank raised interest rates was at the end of 2015.
Prices for fed funds futures implied investors saw about even odds that the Fed will raise ratesin December, largely unchanged from before Yellen’s remarks. “I think that’s something they wouldn’t want to deal with”.
On Friday, Yellen said the Federal Open Market Committee (FOMC), which determines the Federal Reserve’s monetary policy, expects moderate growth in real GDP, a strengthening of the labour market, and inflation rising to 2 per cent over the next few years.
Noting strong U.S. job growth, Yellen said gradual increases in the Fed’s benchmark rate in the coming years should be expected. The rate had been kept near zero since the depths of the 2008 financial crisis.
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Towards the other end of the spectrum, speaking just after Fischer, in an interview with Bloomberg TV Fed governor Jerome Powell argued in favour of a gradual pace of rate increases, adding that a cautious approach on rate hikes was appropriate. The bank also has meetings on November and December.
