She said: “In light of the continued solid performance of the labour market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months”.
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But Yellen was vague on timing.
The Fed has also been charged with increasing inequality with its bond buying program and negative rates, and with being overoptimistic in its forecasts of economic recovery and the pace of interest rate hikes.
The chief also spoke about how the Fed would deal with future recession amid concerns the United States economy is slowing. Recent strong employment data, and signs that inflation is finally beginning to pick up, have encouraged some policymakers to believe rates should rise, if not as soon as September’s policy meeting, then at least before the end of the year. She mentioned raising the Fed’s 2 percent inflation target to give it more leeway or possibly expanding the types of assets the Fed could buy beyond Treasurys and mortgage-backed securities. Yellen highlighted the job market’s improvement and “solid growth” in consumer spending.
“The consumer is actually doing pretty good and there are elements of the labor market doing better”, says Phil Orlando, senior portfolio manager at Federated Investors in NY.
She spent much of her speech on the Fed’s tools that it has used to respond to the Great Recession. That was when it raised its benchmark lending rate from near zero, where it had been since the depths of the financial crisis in 2008.
A September rates increase seems to be off the table, while there seems to be about a 50% chance of a hike in December, Matthews said.
Yellen’s assessment is congruent with several of her colleagues including vice chair Stanley Fischer and signals that the policy-board is growing more comfortable with either a hike in September or December.
With few catalysts to drive business this week, Yellen’s talk at the annual Jackson Hole symposium of global central bankers has hung over exchanges as traders hope for clues about the U.S. economy and guidance on monetary policy.
Even though economic growth has only averaged about 1% this year, Yellen sees the glass half full.
Demand in the industrialized world “will likely remain a drag on global oil consumption next year on weak economic growth, stagnating demographics, higher oil prices, and a reacceleration in fuel efficiencies”, the bank’s analysts said, contrasting that to emerging-market demand, which is likely to keep growing.
The Fed raised interest rates last December for the first time in almost a decade.
The FTSE 100 jumped by 0.5 per cent shortly after the chair of the U.S. central bank said the case for lifting rates in America had strengthened. Comex gold gained $19.40 to $1,344.0 per ounce – around a one-week high.
“The overall takeaway, not just from Yellen but for the week, is that all the Fed officials – the voter and no-voter alike – have all taken a hawkish bent”.
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“Yellen succeeded in leaving the door open to nearly anything”, says Kathy Jones, chief fixed income strategist at Charles Schwab.
