“The Fed served notice that a rate hike is still a possibility this year, and the markets had gotten a little complacent”, said Anthony Valeri, investment strategist for LPL Financial in San Diego. The rate had been kept at a record low near zero since the depths of the 2008 financial crisis.
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After a quiet week, the highly anticipated speech by Fed Chair Janet Yellen delivered today at the he Jackson Hole Economic Policy Symposium lived up to its billing.
Demand in the industrialized world “will likely remain a drag on global oil consumption next year on weak economic growth, stagnating demographics, higher oil prices, and a reacceleration in fuel efficiencies”, the bank’s analysts said, contrasting that to emerging-market demand, which is likely to keep growing.
The Fed’s next meeting will be held on September 20-21.
She added that the Fed still thinks future rate increases should be “gradual”. Yellen’s remarks are “pointing more towards December than September as they await more data”, he said in a telephone interview.
“Looking ahead, the FOMC expects moderate growth in real gross domestic product, additional strengthening in the labor market, and inflation rising to 2 percent over the next few years”, Yellen said. Others say they foresee no action until after the election in December at the earliest.
In effect, today, Chair Yellen walked a policy tightrope, in a further attempt to only tighten policy when the USA economy is in its “Goldilocks” state – every is just right. The market didn’t appear to find this disturbing, suggesting that Fed chief Janet Yellen’s speech at the economic summit in Jackson Hole was the market’s main focus. “Investors will closely watch for cues on Fed chair’s thinking to fine-tune the trajectory of Fed rate hike”, Citi said.
The odds of a hike in September climbed to 30 percent from 21 percent on Thursday, according to CME Group’s FedWatch tool.
The FTSE 100 jumped by 0.5 per cent shortly after the chair of the USA central bank said the case for lifting rates in America had strengthened. To ease the impact of the recession, for example, she said the Fed had effectively used bond purchases to reduce long-term borrowing rates and had assured investors that short-term rates would stay low. She mentioned raising the Fed’s 2 percent inflation target to give it more leeway or possibly expanding the types of assets the Fed could buy beyond Treasurys and mortgage-backed securities. Indeed, even though the focus of the gathering was on the Fed’s long-term toolkit – “Designing Resilient Monetary Policy Frameworks for the Future” – Chair Yellen made clear nearly immediately that the economy is approaching the Fed’s inflation and employment goals.
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The group, some wearing T-shirts bearing the slogan, “We Need a People’s Fed!” posed questions about economic policy and the need for diversity to the Fed officials who took part in the 90-minute discussion.
