The U.S. economy is “now nearing the Federal Reserve’s statutory goals of maximum employment and price stability”, Yellen said. This is a sign that investors read her tone as hawkish. But she stopped short of signaling any timetable for the next rate hike.
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Still, Yellen declined to hint at whether the Fed might raise rates at its next policy meeting, September 20-21, or at its subsequent meetings in early November and mid-December.
Fischer, the Fed’s No. 2 policymaker, said the Labor Department’s jobs report for August will likely weigh on the decision over a hike.
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.
“While economic growth has not been rapid, it has been sufficient to generate further improvement in the labor market”, she said.
The comments, at the annual jamboree of central bankers in cowboy country, fuelled speculation that rates would rise again before the end of the year – possibly as soon as next month.
“The monetary stimulus and negative interest rate policies of several central banks outside the U.S. continue to drive demand for U.S. Treasury bonds as investors search for positive yields, despite abating concerns over the fallout from Brexit”, Fleming said.
United States economic growth in the second quarter was a bit more sluggish than initially thought as businesses aggressively ran down stocks of unsold goods, offsetting a spurt in consumer spending. She also noted that while inflation is still running below the Fed’s target of 2%, it is being depressed mainly by temporary factors. This had then marked the first rate hike in almost a decade.
Because slower growth means future US interest rates will likely also need to be lower on average, some analysts have suggested that the Fed will have less room to fight future recessions because there will be less room to cut rates. The Fed last raised rates nine months ago, the first time it had done so since the 2008 economic downturn. “The wage component, length of the workweek and types of jobs, all are crucial in order to extrapolate to inflation”, said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.
By raising the interest rates, the Fed would make it more expensive to borrow money and more profitable to lend money.
Fischer said he agreed with the chairwoman.
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“The real opportunity for rate hikes was past year”, MacGuineas said.
