A recession at that point, she said, would mean that “asset purchases and forward guidance might have to be pushed to extremes to compensate”.
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She also noted that while inflation is still running below the Fed’s 2 percent target, it’s being depressed mainly by temporary factors.
Yellen, who spoke at a symposium in Jackson Hole, Wyoming today, said the economic strength, largely driven by strong job market data, presents a good case for increasing interest rates.
Federal funds futures implied traders saw about a 58 percent chance the Fed would hike rates at its December 13-14 policy meeting, compared with a 52 percent chance late on Thursday, according to CME Group’s FedWatch program. “Of course, our decisions always depend on the degree to which incoming data continues to confirm the committee’s outlook”, she said. Hawkish comments from a slew of other Fed officials have already raised expectations of a rate hike this year. Unable to break out of a 1.5 percent band for more than 30 days, the market is locked in its tightest trading range since the end of 1965 amid confusion about Federal Reserve policy and the outlook for earnings.
The central bank plans to raise interest rates maybe someday. In the eight months since then, Treasury yields have fallen to record lows, and mortgage rates have tumbled right along with them. At the same time, with the approaching U.S. elections and the uncertainty associated with Brexit, it is hard to determine the fate of interest rate in the country.
Some economists have said they think conditions are ripe for the Fed to boost rates next month.
Yellen said her speech what the Fed found out in the wake of the financial crisis is that market are more fragile than it thought.
“It looks like trading in oil (and most other commodities for that matter) is all about the dollar”, said Tyler Richey, co-editor of The 7:00’s Report.
Fischer was asked on CNBC whether people should “be on the edge of our seat” for a rate hike in September, and for more than one policy tightening before year end.
Some have said that if the Fed does decide to act in September, it would need to further prepare investors.
Still, Dr Yellen was not explicit on the timing of any rate increase.
The Fed chair on Friday defended the extraordinary tools the central bank has used to support the economy since the 2007-2009 Great Recession.
Cutting interest rates into negative territory, as central banks have done in Europe and Asia, carries risks such as encouraging cash hording.
“The market is in a degree of a sweet spot”, said Bill Merz, senior investment strategist at the Private Client Reserve at U.S. Bank in Minneapolis, Minnesota.
Going forward, however, the Federal Reserve expects moderate economic growth in the USA economy with inflation reaching the 2% target over the next few years.
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In a speech at an economics conference here, she acknowledged that the recovery’s momentum remains tepid.
