Yellen pointed to a recent rebound in employment and said the Fed expects the economy to continue expanding.
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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.
Even two rate hikes before 2016 was out were possible, a top USA central bank official said.
Powell also referenced strength in the United States dollar as an important factor when considering when to tighten policy, a point that was also made by the president of the St.Louis Fed, James Bullard, earlier in the same day.
“Dr. Yellen stated clearly, though, that some of the other tools now being discussed by “observers” – aka the Fed’s very own John Williams – such as raising the inflation target or targeting nominal GDP, are “not actively” under consideration”. Now, the sentiment is that the rate hike could occur as early as September, although some think the Fed will wait until December, until after the USA presidential election.
Federal Reserve Vice Chairman Stanley Fischer told reporters on Friday the decision on whether to hike interest rates should be looking forward, not backward – and the next jobs report will figure into the process.
The main-share Philippine Stock Exchange index (PSEi) lost 9.05 points or 0.12 percent to close at 7,845.49, in line with another day of cautious trades across the region.
The perceived chances of a rate hike in September climbed to 36 percent from 21 percent the previous day, according to CME Group’s FedWatch tool.
The rally has sputtered in the second half as signs of an improving US economy rekindled rate concerns, prompting some investors to rein in bullish bets. US stocks, which had been higher, then fell.
The markets were satisfied by the lack of surprises in Yellen’s remarks, said Tim Drilling, regional investment director of U.S. Bank’s Private Client Reserve. “But even if average interest rates remain lower than in the past, I believe that monetary policy will, under most conditions, be able to respond effectively”, she added.
Such a view is “exaggerated”, Yellen said, because the Fed will be able to buy bonds and make pledges about future policy to lower interest rates.
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In a footnote she referred to recent Fed research indicating that a bad downturn that begins when rates are low could require the Fed to take on another $4 trillion in assets, doubling its current balance sheet.
