In her speech, Yellen said the USA central bank already thinks the economy is close to meeting its goals of maximum employment and stable prices.
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Some analysts have suggested the Fed will have less flexibility to fight future recessions because there will be less room to cut rates.
Earlier Friday, gold gained more than 1% on Friday, breaking a five-day streak lower after Fed Chair Janet Yellen said the case for raising USA interest rates has strengthened, although increases should be gradual. Investors have been doubtful about the central bank’s guidance, in part because its policymakersappear to be divided over whether to hike rates soon or take a more cautious approach.
Traders since last week were betting that the Fed will not act at least by its December meeting because of a mixed economic performance, as the economy is creating more jobs than expected but inflation is showing a weak trend.
Fischer added that the August jobs report out next Friday will factor into the Fed’s decision. 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.
But Yellen is confident about economic growth and inflation reaching the bank’s target rate.
United States stock markets, which opened slightly higher, added to gains, with the S&P 500 trading up 0.4 percent shortly after the text of her speech was released.
A wobbly economy, low inflation and turmoil overseas had kept the Fed from continuing rate normalization.
BOND REACTION: After initially rising after Yellen’s speech, USA government bond prices fell.
Her speech comes as leading central banks have proven unable to convincingly reverse a broad economic slump, despite years of ultra-low borrowing costs and stimulus. Wages, as measured by the Labor Department’s average hourly earnings data, have risen 2.6% over the past year, shy of more generous gains seen during previous economic expansions.
The Fed raised interest rates last December for the first time in almost a decade.
In afternoon trading, the dollar index, which measures the greenback versus six major currencies, rose 0.8 percent at 95.563.
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“Yellen wants to set the table for a September hike, but perhaps only deliver the hike in November or December”, said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management, in Menomonee Falls, Wisconsin.
