“Domestic spending has been growing at a solid pace” and “some of the downside risks had diminished” with regard to global economic and financial developments, Yellen added. In its Inflation Report, it predicted near-zero inflation would pick up only slowly even if borrowing costs stay on hold all of next year.
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“Further downside potential remains should the NFP number rise, bolstering speculation for the Fed to raise rates in December”, FastMarkets analyst Tom Moore said. There have been a few signs of stability since the summer.
Yellen pointed to a possible December interest rate lift-off and laid out what now appears the base case at the USA central bank-that low unemployment, continued growth and faith in a coming return of inflation means the country is ready for higher interest rates. A few lawmakers think the Fed may have created another bubble by artificially propping up the market for too long, and are concerned the interest rate hike be done carefully to avoid spooking the market.
Earlier in the day, the Norges Bank left interest rates unchanged at 0.75% leaving the door open for more stimulus announcements should the economy disappoint or prices rise by less than expected.
The Fed chief expressed optimism that the USA economy will be on track to meet the central bank’s inflation and employment goals, saying that “at this point I see the US economy as performing well”. A Wall Street Journal survey predicted 190,000 jobs would be added in October – a almost 50,000 increase from September – creating yet another positive argument for a rate hike.
Yellen and other Fed officials have repeatedly said this year that they believe there will likely be a rate hike in 2015.
Republicans on the House committee have been critical of numerous regulatory changes the Fed is undertaking to implement the 2010 Dodd-Frank Act.
The CME Group, an American futures company, said there is a 56 percent chance the rates will increase. A few in the market were expecting at least one more member to join McCafferty in voting for rate hikes.
“Today’s sell-off was easily definable by a few hawkish comments out of [Yellen] suggestive of a rate hike next month”, wrote Jim Ritterbusch, with the oil trading firm Ritterbusch & Associates, in a note.
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Friday’s nonfarm payrolls report for October will be crucial when it comes to determining the Fed’s next move, said Anthony O’Brien, co-head of European rates strategy at Morgan Stanley.
