The dollar strengthened on Thursday, building off a solid rebound in the previous session, on stronger economic data and confirmation from Fed Chair Janet Yellen that she expects interest rates to rise “a few times” this year.
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While Yellen did not mention Trump or other Republicans who have criticized the Fed, she noted that an independent central bank is best for the US economy.
The U.S. central bank should be able to raise rates “in a gradual and patient manner”, Dallas Fed President Robert Kaplan said on Wednesday. The first part of the day saw the USA dollar gain in strength across the board as the Fed Chief Yellen made it clear that the markets can expect the Fed to hike rates in the coming months as long as the data continues to come in strongly.
That “longer-run neutral rate” refers to the rate that “once the economy has reached our objectives, will keep the economy on an even keel”, she explained. Her comments were in prepared remarks she planned to deliver at 8 p.m.at the Stanford Institute for Economic Policy Research.
This year’s FOMC meetings, at which interest rate decisions are usually made, are due to be held right at the end of this month (Jan 31-Feb 1) which is nearly certainly too close to the President Trump inauguration (tomorrow) for any such decision to be made. “The economy has come a long way since the financial crisis”, said Ms. Yellen. Such efforts, however, could gain more momentum with Trump in the White House.
Yellen left no doubt that she supports this stance. For example, the most prominent guidepost, the Taylor rule, figures inflation and the gap between actual economic output in the economy’s potential.
Yellen did not expand on that view in her Thursday speech, but she did explore the use of various formulas to guide the Fed’s in its rate decisions.
The buck gained as much as 1 percent following Yellen’s speech Wednesday, regaining investor confidence over solid growth and growing inflation that kept sent the currency on the positive territory after the Trump victory-induced rally since November 8 (1)-although the currency has always been highly volatile (2) after that.
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Yellen’s comments were not seen as a departure from the Fed’s previous tone but they highlighted strong US fundamentals which support a strong dollar, high yields and stocks. In October, she appeared to endorse such an approach. The work showcase has been including employments at a consistent clasp and wages are rising. But not all sectors appear to be operating close to full capacity – a separate Fed report out Wednesday showed that manufacturing output has barely inched ahead over the past year.
