The remarks, delivered at an annual policy conference here, indicated that the Fed would consider raising rates at its next meeting in mid-September, though most analysts say they think the Fed is more likely to move in December.
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In her much-awaited speech at an worldwide gathering of central bankers in Jackson Hole, Wyoming, Yellen did not indicate when the Fed might hike rates.
“Based on this economic outlook, the FOMC continues to anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives”, she added.
“It is clear that she fundamentally does not want to see any change to the Fed’s policy framework despite the fact that inflation expectations have become de-anchored and markets have lost trust in the Fed really fundamentally wanting to deliver on its 2 percent inflation target”, Christensen said.
Earlier, Atlanta Fed President Dennis Lockhart said on Bloomberg Television that the Fed could hike rates possibly twice this year.
The moderate growth in the second quarter followed a sluggish pace of 0.8 percent in the first quarter, underscoring the weak performance of the world’s largest economy in the first half of 2016. 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.
“As ever, the economic outlook is uncertain, and so monetary policy is not on a preset course”, Yellen said. Another possibility is after the Fed meeting in December.
By contrast, the Bank of England cut rates in the United Kingdom from 0.5 per cent to 0.25 per cent this month, and has not raised rates since 2007. 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.
Following the comments, traders raised the odds of a hike in September to 30 percent from the 21 percent-chance they priced in after Yellen’s remarks, according to CME Group’s FedWatch tool.
Yellen did not give guidance on what the central bank needs to see before raising rates. 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.
Federal Reserve chair Janet Yellen’s “biggest speech of the year” has come and gone.
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But she said those options would require more study. “If we have a lousy number, sure, you would take the Fed off the table”.
