In December, the Fed raised its benchmark rate modestly in response to a brighter economic picture, notably a job market nearing full health.
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“The market is waiting on tenterhooks for Janet Yellen and really hoping we’re going to see some firm indications on when they are going to raise rates”, said Michael Johnston, senior trader at HiFX.
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 USA dollar.
ANALYST TAKE: Yellen’s speech is “the big event” of the day and has the potential to “create waves within the calmness that has prevailed throughout this month”, said Margaret Yang, market analyst at CMC Markets Singapore.
Fischer said on CNBC TV that the Fed was still on track to raise rates this year.
Phil Orlando, a strategist at Federated Investors in NY, said: ‘We continue to believe December was the next logical date for a hike but based on comments from Fed officials lately and the argument from Yellen I guess you can’t take September off the table’.
“While the move towards another Fed rate hike will likely cause bouts of consternation in investment markets I don’t see the same degree of uncertainty that we saw around last year’s Fed rate hike”, Shane Oliver, head of investment strategy at AMP Capital in Sydney, wrote in a note. That was down slightly from the 1.2 percent rate reported last month.
The dollar jumped against the yen and euro on Yellen’s remarks before turning lower.
Stock markets in Toronto and NY made gains in the morning following the speech, with the Toronto Stock Exchanges’s S&P/TSX composite index soaring more than 100 points. The range expanded to 0-4.5 per cent by the end of 2018.
Yellen sketched a generally upbeat assessment of the economy in a speech to an annual conference of central bankers in Jackson Hole, Wyo. Citing continued expansion in USA economic activity, especially housing spending, plus an inflation rate running below the FOMC’s desired two percent level, Yellen wondered aloud if this was the right time for another rate increase. “As a result, the yields on U.S. Treasuries remain at depressed levels and are keeping U.S. mortgage rates at record low levels”, Fleming continued.
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Such a view is “exaggerated”, Yellen said, because the Fed will be able to use bond purchases and forward guidance to ease conditions.
