Federal Reserve chair Janet Yellen was among the speakers at Jackson Hole advocating gradual tightening.
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The S&P 500 rose as much as 0.7 percent and declined by as much as 0.6 percent during the session. The Nasdaq composite climbed 27 points, or 0.5 percent, to 5,239. Ahead of the long weekend, some investors chose to lock up recent gains especially while awaiting fresh signals from the US Fed.
Stocks later traded lower after hawkish comments from Fed Vice Chair Stanley Fischer raised the possibility of a rate hike as soon as next month.
Federal Reserve Chair Janet Yellen says the case for an interest rate increase has been bolstered by a steadier USA economy.
“On balance, it strengthened the case for a December move”, said Bill Northey, chief investment officer for the private client group at U.S. Bank in Helena, Montana. And it’s very different from her tone after the June Fed meeting, when she was still looking for assurances from the labor market that the economy’s momentum hadn’t fallen off.
But by the end of the day both stocks and bonds had reversed, with the yield on the 10-year Treasury note rising to 1.62 percent from 1.58 percent late Thursday. In our view, the speech marginally increases the risk of a September hike, but our base case is still for the next hike in December.
The case for raising US interest rates has strengthened in recent months because of improvements in the USA labor market and expectations for moderate economic growth, Yellen said.
Gross domestic product expanded at a 1.1 per cent annual rate, the Commerce Department said yesterday in its second estimate of economic performance, slightly down from the 1.2 per cent estimate in its flash report last month.
Meanwhile, the Commerce Department reported Friday that USA gross domestic product rose 1.1% in the second quarter, below a previous estimate of 1.2%. The market continues to assign roughly 60% chance to a December rate hike, which we feel is appropriate given the potential for an increase in uncertainty heading into the election.
Markets remained skeptical of the Fed’s rate hike projections largely because of the perceived wide gap between what it has signalled and ultimately delivered.
ASIA’S DAY: Japan’s Nikkei 225 fell 1.2 percent after consumer prices fell the most in three years in July.
The Standard & Poor’s 500 index slipped 2 points, or 0.1 percent, to 2,169.
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The October crude contract rose 31 cents at US$47.64 per barrel.
