She also noted that while inflation is still running below the Fed’s 2 percent target, it’s being depressed mainly by temporary factors.
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“Markets are a bit anxious about the upcoming comments from Yellen, which is understandable given how much of the market strength is due to central bank action”, said Philippe Gijsels, head of research at BNP Paribas Fortis in Brussels. Yellen’s remarks are “pointing more towards December than September as they await more data”, he said in a telephone interview.
A U.S. interest rate hike would trigger a rise in the United States dollar.
Data released earlier on Friday, however, showed the economy was more sluggish than initially thought in the second quarter, with gross domestic product expanding at a 1.1 percent annual rate.
“More likely the commentary will, cautiously and implicitly, point towards December” for the next rate increase, said Imre Speizer, a market strategist at Westpac Banking Corp.in Auckland. That was when it raised its benchmark lending rate from near zero, where it had been since the depths of the financial crisis in 2008.
At the time, the Fed foresaw four additional rate increases in 2016. Asian stock markets were mixed Friday, with investors preferring to sit on the sidelines ahead of U.S. Federal Reserve.
After all, Yellen said in May that a rate increase would be appropriate over the summer months. Others say they foresee no action until after the election in December at the earliest.
“What has been impressed on us by Yellen and other Fed officials at this point is that rates are going be lower for longer”, Northey said. “We think the evidence is that the economy has strengthened”.
“The case is strengthening” for a rate hike, Dallas Fed President Robert Kaplan told CNBC television, whose open-air studio here overlooks the craggy peaks of the Grand Teton National Park. For this reason, one economist expects gold strength to remain intact.
Some have said that if the Fed does decide to act in September, it would need to further prepare investors.
Market expectations for a rate hike in September, the Fed’s next meeting, were at 18 percent, according to the CME Group’s FedWatch tool. In 2010, for example, Chairman Ben Bernanke signaled that the Fed was considering a new round of bond purchases to try to help a struggling economy emerge from the wreckage of the Great Recession.
Trading in bonds and equities had been becalmed all week as investors looked ahead to Yellen’s speech. Mind you, she does not have to say very much or get very specific.
“ANALYST TAKE: “(Yellen’s speech) is the big event that the markets anticipated, and it has the potential to create waves within the calmness that has prevailed throughout this month”, said Margaret Yang, market analyst at CMC Markets Singapore. Productivity growth has weakened sharply in recent years and has been a major factor in holding the economy back.
Goldman believes this troubling realization will likely be a popular topic of discussion at Jackson Hole, and Yellen may even address the issue herself.
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Its view is key because its BBB low rating for Portugal is now the only one high enough to keep Portugal’s sovereign bonds in the European Central Bank’s bond-buying programme.
