Federal Reserve Chairwoman Janet Yellen said Friday she expects the US central bank will again raise benchmark interest rates “in the coming months”, due to an improving domestic economy.
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Yellen said she expects the central bank to “gradually and cautiously increase” its key interest rate “and probably in the coming months, such a move would be appropriate”.
While higher USA interest rates could sap global liquidity, Yellen’s comments were taken in stride by Wall Street as they suggested the United States economy was strong enough to weather another rate increase, following from the December hike.
The dollar hit a one-month high against the yen early on Monday and stood tall against other peers after Yellen’s comments.
While she wasn’t more specific about the timing, the federal fund futures gave a 58 percent chance that the central bank would hike the benchmark rate by 0.25 percent in July.
Incoming economic data could make another rate hike appropriate “fairly soon”, Federal Reserve Governor Jerome Powell noted at the Peterson Institute for International Economics earlier in the week.
Although Yellen expressed caution about too steep a rise in USA rates, she sounded more confident than she has in the past that the U.S. economy has rebounded from a weak winter and that inflation would edge higher toward the Fed’s 2 per cent target.
The mixed trade on Monday comes after a strong close to trading in the USA on Friday and as Asian shares were broadly higher. On Friday the Commerce Department said the USA economy grew a bit more in the first quarter than it previously estimated. It is up 2.9% for May, thanks to a tailwind from a weaker yen. “The question for me here is whether the dollar can carry on rallying on the prospect of the Fed raising rates faster over the next 18 months than is priced in, as opposed to rallying only on expectations of a move in June or July”, he said.
Yellen’s comments came during an appearance at Harvard, where she was honored with the Radcliffe Medal. Stock markets around the world edged higher Thursday, May 26, 2016, as traders interpreted the rise in oil prices to $50 a barrel for the first time this year as a positive sign for the global economy. US stocks were poised to open marginally higher, with Dow and S&P 500 futures each up 0.1 percent.
The Dow Jones industrial average rose 44.93 to close at 17,783.22.
Financial spreadbetters predicted Germany’s DAX and France’s CAC 40 to each open up 0.7 percent, after Friday’s gains on Wall Street.
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GROWTH OUTLOOK: Markets are also awaiting the latest US quarterly growth figures to get a read on the health of the world’s biggest economy.
