THE QUOTE: “Who would think the Fed would raise interest rates two months before a very important election and with economic growth that has been back and forth and back and forth for years?” said Bruce Bittles, chief investment strategist at R.W. Baird.
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Speaking at the annual three-day symposium in the U.S. state of Wyoming, Yellen showed she was cautiously upbeat about the USA economy.
Her comments came as U.S. economic growth was revised to 1.1 per cent for the second quarter, a more sluggish rate than the initial estimate of 1.2 per cent.Markets jumped on her comments with the Dow surging about 80 points following the speech, after briefly paring gains, CNBC reported.
Comments by the Fed’ No. 2 policymaker, Vice-Chair Stanley Fischer, following Yellen’s speech also bolstered the case for a hike this year.
The perceived chances of a rate hike in September climbed to 30 percent from 21 percent the previous day, according to CME Group’s FedWatch tool.
The three are viewed as the core of the US central bank, and the most influential in setting policy. The S&P 500 .spx was up 10.25 points, or 0.47 percent, at 2,182.72. “We do think that she is okay with hiking rates sometime in 2016, but the markets perception of what’s going on today is that they’re more inclined to hike in December”.
“At the end of the day, headlines weren’t as dramatic as people were scared they might be”, said Walter Todd, who oversees about $1.1 billion as chief investment officer for Greenwood Capital Associates LLC in SC. She said the Fed still planned in the future to wind down its massive balance sheet but that it would take time, adding that the balance sheet was likely to be useful for policy for some time. The Fed has policy meetings scheduled in September, November and December.
Yellen was the lead-off speaker Friday for an annual conference attended by members of the Fed’s board of governors in Washington, officials from the Fed’s 12 regional banks and monetary leaders from around the world.
The conference’s theme is “Designing Resilient Monetary Policy Frameworks for the Future”, reflecting concern that the global economy has become trapped in a slump of low growth and low inflation and uncertainty about how central banks should respond.
Investors took Yellen’s latest comments in stride.
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. So the question is: are you taking a lot of risk there?
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“Helicopters, negative rates or a higher inflation target remain confined to other central banks or academic circles”, Commerzbank economist Bernd Weidensteiner wrote after Yellen’s speech.
