“The market … needed to digest both Yellen and Fischer’s comments and it is reacting in a way that is very consistent with an interest rate move”, said David Schiegoleit, managing director at U.S. Bank Private Client Reserve in Los Angeles. In the bond market, the 10-year benchmark yield closed barely changed at 7.13%, as did the rupee at 67.06 to a dollar.
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Federal Reserve Chair Janet Yellen, center, Stanley Fischer, left, vice chairman of the Board of Governors of the Federal Reserve System, and Bill Dudley, the president of the Federal Reserve Bank of NY, stroll together before Yellen’s speech to the annual invitation-only conference of central bankers from around the world, Friday, Aug 26, 2016, at Jackson Lake Lodge in Grand Teton National Park, north of Jackson Hole, Wyo.
Thereafter, he added her views “didn’t necessarily offer much in the way of surprises but it did confirm one thing – there is now a clear and public hawkish consensus building within the Fed and Chair Yellen is on board” with regard to guidance on monetary policy.
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. After Yellen’s speech, data from the CME Group indicated that investors foresee only a 24 percent probability of a rate hike in September and about a 58 percent chance by December. The dollar was last up 0.75 percent at $95.492 versus a basket of major currencies. The Australian dollar dropped 0.77 per cent to US75.60¢. The Nasdaq composite dipped 12 points, or 0.2 percent, to 5,200.
“If there was some doubt about whether or not rates will come up this year, there are fewer doubts today”, said Roberto Perli, a partner at Cornerstone Macro LLC in Washington.
THE QUOTE: “She suggests the economy is improving, but the GDP numbers for the past three quarters are closer to 1 percent than three percent”, said Bruce Bittles, chief investment strategist at R.W. Baird.
Back in June, Capital Economics claimed that the Fed will raise rates faster than the markets expected.
Yellen’s speech comes after some colleagues have been fairly upbeat in their assessments of the economy, which could mean they’re eager to lift rates in the coming months.
JP Morgan was up 1% to $66.74 and Goldman Sachs rose 0.5%.
Yellen, speaking at a conference in Wyoming on Friday, said the case for raising interest rates has strengthened given improvements in the economy. The FOMC’s next meeting is on September 20-21.
Some experts, however, say that while a September rate hike could be possible, a December hike is more likely.
Yellen said the economy was “nearing” the Fed’s goals of full employment and stable prices.
Noting strong United States job growth, Yellen said gradual increases in the Fed’s benchmark rate in the coming years should be expected.
Such low rates could “substantially impair policy effectiveness” for the Fed to fight recessions, because there would be less capacity to cut rates.
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Kaplan also indicated he thinks “the case for removing some amount of accommodation” and raising interest rates has strengthened, though he expects the future path of interest rates – laid out in the FOMC’s so-called dot plot projections – will be more muted going forward than what the FOMC is now projecting.
