Yellen’s comment on Friday “reinforces the signals on early rate hikes communicated recently by her FOMC colleagues”, Mohamed A. El-Erian, chief economic adviser at Allianz, said via Twitter.
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Yellen said a big reason to lift the federal funds rate gradually is that if an abrupt move derailed the recovery, the Fed has few tools to stimulate growth with its benchmark rate still so low.
Yellen also closed the door on the idea that if the US does experience an economic shock the central bank would introduce negative interest rates.
“The economy is continuing to improve”, she said, discussing the domestic economy with Harvard economics professor Gregory Mankiw, noting that she expects inflation to “move up over the next couple of years to our 2 percent objective”.
The US dollar strengthened after Federal Reserve Chair Janet Yellen said on Friday an interest-rate increase is likely in coming months.
It’s the latest sign of economic weakness in China, where growth slowed last year to a 25-year low of 6.9 percent and is expected to decelerate further this year.
Her comments also were largely in tune with a chorus of other Fed officials who have indicated in recent weeks that policy makers could resume raising rates as soon as June.
“I have been told that a bunch of money managers in NY have delayed their trip to the Hamptons this afternoon, so that they could listen to you talk here today in case you move markets”, Greg Mankiw, a professor of Economics at Harvard University, told Yellen to laughter from audience.
Although Yellen noted that the USA economy still faces some challenges, she was optimistic that it will continue to grow.
The probability of a rate rise at the Fed’s June 14-15 meeting rose to 34 percent from 30 percent before Yellen’s remarks, according to CME Group, where the futures contracts are traded.
The dollar index logged a fresh two-month high of 95.940, and was last up 0.4% at 95.897.
Canada’s main stock index climbed on Friday, helped by strength in the financial services sector and energy companies, with investors focusing on monetary policy commentary from USA central bank chief Janet Yellen. “The strength of auctions shows a lot of investors remain unconvinced that a rate hike is in the cards for June”, said Christopher Keith, fixed income manager at Adviser Investments.
Other euro zone bond yields were 1-2 bps higher on the day, while overall trading was subdued with US and United Kingdom markets closed for a holiday.
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The one downside Yellen highlighted for the USA economy is the nation’s productivity, which has average about 0.5% a year within the last five years. US stocks were poised to open marginally higher, with Dow and S&P 500 futures each up 0.1 percent.
