Fischer’s comments came shortly after Fed Chair Janet Yellen said the case for increasing interest rates had strengthened, but did not indicate when the Fed would raise rates.
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The dollar stood tall in Asian trading on Monday, after Federal Reserve Chair Janet Yellen’s upbeat comments on the US economy and traders raised their bets on an interest rate increase.
But the Fed chief said the USA economy was creating a lot of new jobs and would likely keep growing moderately, despite data earlier in the day showing only sluggish growth in the second quarter.
Yellen, speaking at a conference in Wyoming on Friday, said the case for raising interest rates has strengthened given improvements in the economy.
THE QUOTE: “Who would think the Fed would raise interest rates two months before a very important election and with economic growth that has been back and forth and back and forth for years?” said Bruce Bittles, chief investment strategist at R.W. Baird.
In her speech Friday, Yellen added that the Fed still believes that future rate increases, whenever they occur, will be “gradual”.
For all the talk of a radical shift in central banking policy, from the permanent use of negative rates to helicopter money drops, Federal Reserve Chair Janet Yellen appears to believe she can tackle any future downturn using the tools now at her disposal.
Yellen said the Fed already thinks it is close to meeting its goals of maximum employment and stable prices, and she described consumer spending as “solid” while noting business investment was weak and exports had been hurt by a strong United States dollar. 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.
Traders since last week were betting that the Fed will not act at least by its December meeting because of a mixed economic performance, as the economy is creating more jobs than expected but inflation is showing a weak trend.
Economists took her remarks to mean that while a rate hike remains possible at the Fed’s September meeting, it isn’t necessarily likely.
“Looking ahead, the FOMC (Federal Open Market Committee) expects moderate growth in real gross domestic product, additional strengthening in the labour market, and inflation rising to 2 per cent over the next few years”, she said. This had then marked the first rate hike in almost a decade. The range expanded to 0-4.5pc by the end of 2018.
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Even if the Fed does decide to push interest rates up, however, it will most likely only be by around a quarter of a percent.
