The upbeat assessment of the USA economy came Friday during a much anticipated speech by Fed Chair Janet Yellen in Jackson Hole, Wyoming.
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Yellen stopped short of saying when rates would rise but she was upbeat on the USA outlook and her speech did enough to strengthen market perceptions that long promised rate hikes are coming – most likely in December but possibly as soon as September. Economic indicators that contradict that view could end up pressuring the Dollars as the September rate hike is already a long shot, but as per the Fed still a live possibility.
The Canadian dollar, meanwhile, was down 0.44 of a cent at 76.92 cents US.
Yellen, speaking at a conference of monetary officials in Jackson Hole, Wyoming on Friday, said the case for raising interest rates has strengthened given improvements in the economy.
The yield on the benchmark 10-year note was 1.544%, compared to 1.576% on Thursday and 1.561% before the speech.
After Yellen’s assessment of the economy, investors increased their bets that a rate increase might come as early as September.
United States 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.
Hunter pointed to a government report Friday that the economy, as measured by the gross domestic product, grew at an anemic 1.1 percent annual rate last quarter as evidence that the Fed likely wants to see stronger growth.
Market watchers had complained this year that the Fed’s public pronouncements had been inscrutable and sometimes contradictory, leaving investors perplexed. Given the forecasting errors of recent years, some economists were less than impressed, saying Yellen’s speech showed past policy errors were being repeated.
In a speech earlier Friday, Yellen said the case for raising rates has strengthened in recent months. And in our view, Yellen sent a similar message to markets today – making an official rate hike at the upcoming September Fed meeting a very high probability (barring a surprising slump in August payrolls).
Slower growth in working-age populations, smaller productivity gains and less spending on capital projects were contributing to slower economic growth and lower interest rates around the world, she said.
She also noted that while inflation is still running below the Fed’s 2 percent target, it is being depressed mainly by temporary factors. The words by Yellen at Jackson Hole has once again made the NFP report the biggest indicator for the market could decide the future of the September rate hike.
Yellen “is opening the door” for the eventual consideration of new policy options for the Fed, said Laura Rosner, senior USA economist at BNP Paribas in NY.
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Many argue the power of central bankers has waned as rates of moved towards zero and there is risk that they won’t have the tools to deal with future recessions.
