Wall Street rose on Friday after Federal Reserve Chair Janet Yellen said the case for increasing interest rates had strengthened, but did not indicate when the Fed would raise rates.
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In a mid-day interview on CNBC, the Fed’s No. 2 policymaker, Vice Chair Stanley Fischer, suggested that rate hikes were on track for this year.
David Jones, chief economist at DMJ Advisors, said this week that he thought the chances of a September rate hike are rising, especially if forthcoming economic data, including next week’s jobs report for August, show strength.
The US Federal Reserve has its monetary policy review meetings scheduled in September, November and December, while Yellen’s speech on Friday increased expectations of a rate rate within the current calendar year.
If productivity and economic growth remain low and world savings rates remain high, she said it is conceivable the Fed is never able to raise the policy rate beyond 2.0 percent, leaving the central bank anchored uncomfortably close to zero.
Viktor Nossek, director of research at WisdomTree Europe, does not expect a rate rise imminently, despite Yellen’s comments. “Jackson Hole has done nothing to trigger a rate hike in the U.S.”, he said. Following her remarks, investors continued to bet there were roughly even odds of an increase at the Fed’s December policy meeting.
Figures from the US Commerce Department released earlier in the day indicated the US economy grew more slowly than initially estimated in the second quarter of the year. The Fed last raised rates nine months ago, the first time it had done so since the 2008 economic downturn.
Yellen’s review of the Fed’s “toolkit” began with a spirited defense of techniques used during the financial crisis, including bond purchases and pledges to hold rates low for an extended period.
Stock markets and the loonie had barely moved Thursday in anticipation of Yellen’s speech Friday at the central bank’s annual summer symposium in Jackson Hole, Wyo.
“Most global currencies are down against the USA dollar”, he said. She added that the FOMC expected the inflation to rise to 2% over the next few years.
Yellen also said the economy is “nearing” the Fed’s goals of full employment and stable prices.
A split within the Fed over whether to hike rates soon or take a more cautious approach also has muddied the waters.
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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.
