U.S. stocks, along with global markets, had held off from heavy volume trading on Thursday and Asia on Friday as they waited with baited breath for hints of a rate hike timetable.
Advertisement
Stocks are rising in early trading Friday following two days of declines as investors await a speech by Federal Reserve Chair Janet Yellen that may hint at the timing of future interest rate increases. The remark appears to at least leave the door open to a September rate increase if next week’s employment report shows strong payroll gains again in August.
Her remarks increased the likelihood that the Fed will increase the rate from its current ultra-low 0.25-0.50 percent level by the end of the year, and as early as its next meeting in September.
Yellen’s statement was a lot more clear than many had expected from the notoriously dovish Fed chair.
“While economic growth has not been rapid, it has been sufficient to generate further improvement in the labor market”, she said.
A rate hike is possible at the Fed’s next policy meetings in September, November and December.
The Fed’s more than $3 trillion in purchases of Treasury bonds and mortgage-backed securities lowered long-term interest rates, keeping mortgage rates, corporate bonds and other borrowing costs low for consumers and businesses, stimulating economic growth.
That was when the Fed raised its benchmark lending rate from near zero, where it had been since the depths of the financial crisis in 2008. The turbulence overseas, coupled with surprisingly weak readings of the recovery at home, has kept the Fed from raising rates this year despite initially anticipating hiking as many as four times.
The job market is humming, and so are the US financial markets, with major stock indexes near record highs.
“We asked the Fed presidents to keep distressed communities in mind when they make their interest-rate decisions”, said Dan Crawford, a spokesman the liberal Economic Policy Institute, one of the organizations in the coalition.
Fischer said he agreed with the chairwoman.
The minutes showed there was little consensus whether to raise rates in September, partially reflecting the uneven data received about the U.S. economy. Williams has called for the central bank to rethink its policy framework, such as through targeting a higher inflation rate. “And, as ever, the economic outlook is uncertain, and so monetary policy is not on a preset course”. “The US and regional counters were also down, further depressing investor sentiment”, said Jonathan Ravelas, BDO chief market strategist. But she said those options would require more study. Still, Yellen’s comments on the economy and what tools the Fed might consider using in the future will still have a significant impact on the foreign exchange markets.
The upshot: The U.S. economy has lost its verve and may need the Fed’s medicine for longer. Productivity growth has weakened sharply in recent years and has been a major factor in holding the economy back.
Yellen on Friday defended the models used by the Federal Reserve.
In advance of Yellen’s speech Friday, several Fed officials met Thursday with about 120 activists from the Campaign for Popular Democracy’s Fed Up coalition.
Advertisement
The group, some wearing T-shirts bearing the slogan, “We Need a People’s Fed!” posed questions about economic policy and the need for diversity to the Fed officials who took part in the 90-minute discussion.
