– Janet Yellen, the Federal Reserve Board chairwoman, said Friday that she saw a stronger case for raising the Fed’s benchmark interest rate, suggesting the central bank was likely to act in the coming months. Asked whether Fed watchers should be looking for such a move in September, and possibly for two hikes this year, Fischer said Yellen’s remarks were “consistent with answering “yes” to both of your questions”.
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“I believe the case for an increase in the federal funds rate has strengthened in recent months”, Yellen said. Fischer added that the August jobs report out next Friday will factor into the Fed’s decision.
The Fed has policy meetings in September, November and December.
“Overall, along with the more upbeat tone of the recent data, we think the odds of a September rate hike have probably increased”, said Andrew Hunter, U.S. Economist at Capital Economics.
San Francisco Fed President John Williams, Yellen’s former research director when she was head of that bank, urged central banks in an essay earlier this month to “carefully reexamine” their strategies, and mentioned the possibility of raising inflation targets, among other options.
Stock markets in Toronto and NY made gains in the morning following the speech, with the Toronto Stock Exchanges’s S&P/TSX composite index soaring more than 100 points.
The Fed raised rates for the first time in almost a decade last December, from around zero to between 0.25 per cent and 0.5 per cent, but has kept them there ever since.
“Janet Yellen’s making it very clear, rates are on the rise”, said Mark Williams, a finance professor at Boston University.
Belisle said the majority of investors expecting a raise in the rate before the end of the year.
The Asia-Pacific benchmark is on track for a 0.3 percent loss for the week, but is up almost 9 percent so far this year.
Gold stocks jumped on a 1.1 percent gain in the gold price.
The Fed signaled in June that it still expected to raise rates twice this year, but investors have been doubtful in part because policymakers appear sharply divided over whether to hike rates soon or take a more cautious approach.
Ulta Salon also fell 4.7 percent and was the top percentage loser on the S&P 500 after giving a disappointing forecast for the current quarter.
The Fed’s aversion to negative rates shows how central bankers are confronting the limits of their efforts to stimulate the slow-growing global economy.
The chief also spoke about how the Fed would deal with future recession amid concerns the U.S. economy is slowing.
Still, Yellen has left a room open for prolonging her inaction on the rate front by saying that future data releases will set the direction.
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Such a view is “exaggerated”, Yellen said, because the Fed will be able to use bond purchases and forward guidance to ease conditions. It was also waiting to see better employment figures and inflation at 2%.
