Wall Street rose on Friday after Federal Reserve Chair Janet Yellen said the case for increasing interest rates had strengthened, but did not indicate when the Fed would raise rates.
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Noting strong United States job growth, Yellen said gradual increases in the Fed’s benchmark rate in the coming years should be expected.
If productivity and economic growth remain low and world savings rates remain high, she said it is conceivable the Fed is never able to raise the policy rate beyond 2.0 percent, leaving the central bank anchored uncomfortably close to zero.
Federal Reserve Chair Janet Yellen, center, Stanley Fischer, left, vice chairman of the Board of Governors of the Federal Reserve System, and Bill Dudley, the president of the Federal Reserve Bank of NY, stroll together before Yellen’s speech to the annual invitation-only conference of central bankers from around the world, Friday, Aug 26, 2016, at Jackson Lake Lodge in Grand Teton National Park, north of Jackson Hole, Wyo.
Banks have been advocating for a rate increase. In Friday’s volatile session, the sensex closed a marginal 0.2%, or 54 points, lower at 27,782 with foreign funds net buying Rs 341 crore, BSE data showed.
Expectations for higher interest rates would likely continue a recent trend of investors selling high-dividend payers like utilities and telecoms, in favor of sectors tied to economic expansion like financials and industrials.
“While they said the same thing, Fischer’s comments were delivered in a more hawkish fashion than Yellen’s”, said Ryan Larson, head of US equity trading at RBC Global Asset Management in Chicago.
Shares of Herbalife fell 4.7 percent to $59.04 after a report said Carl Icahn, the nutritional supplement maker’s top shareholder, was looking to sell his stake.
The Fed raised rates in December, its first hike in almost a decade, but it has held off further increases so far this year due to a global growth slowdown, financial market volatility and generally tepid US inflation data. In 2010, for example, Chairman Ben Bernanke signaled that the Fed was considering a new round of bond purchases to try to help a struggling economy emerge from the wreckage of the Great Recession.
WASHINGTON: For all the talk of a radical shift in central banking policy, from the permanent use of negative rates to helicopter money drops, Federal Reserve Chair Janet Yellen appears to believe she can tackle any future downturn using the tools now at her disposal.
More immediately she provided a probability chart of where the Fed funds rate may move in coming months.
But to combat future downturns, she said the Fed should explore other options, too. She said efforts need to be made, in particular, to boost the productivity of USA workers.
Yellen on Friday defended the models used by the Federal Reserve. 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.
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“Our communities are being sacrificed for an inflation enemy that isn’t here”, said Rod Adams, a community organizer for Neighborhoods for Change in Minnesota.
