Yellen lifted the cloud of uncertainty over the Fed’s monetary policy direction in a speech at a central banking symposium in Jackson Hole, Wyoming, saying: “The case for an increase in the federal funds rate has strengthened in recent months”.
Advertisement
It means the United States could raise interest rates as early as next month, though markets believe a hike would be more likely to happen in December. “Of course, our decisions always depend on the degree to which incoming data” confirms (or invalidates) the Federal Reserve Board’s view.
Dudley said in an interview last week that he believes, “We’re edging closer towards the point in time where it’ll be appropriate to raise interest rates further”.
The minutes make clear that there is a significant faction within the FOMC that will not favor raising the Fed funds rate in September.
So, if you average that with first quarter GDP growth of.8 percent, you get an economy that is growing at less than 1 percent annually.
“The speech from Janet Yellen. was the biggest thing moving the market today”, said Steve Belisle, a senior portfolio manager of equities at Manulife Asset Management.
But the Fed is also data dependent, and next Friday’s August jobs report could stir up speculation about a September hike since Yellen has now left the door open. She said the Fed still planned in the future to wind down its massive balance sheet but that it would take time, adding that the balance sheet was likely to be useful for policy for some time. She also described consumer spending as “solid”, but noted that business investment was weak and exports were taking a hit from a strong USA dollar.
The Fed chair on Friday defended the extraordinary tools the central bank has used to support the economy since the 2007-2009 Great Recession.
Krishna Memani, chief investment officer at OppenheimerFunds, says Yellen’s comments are too long-term and theoretical for investors to jump into act on now.
“This criticism fails to consider the unusual headwinds the economy faced after the crisis”, she said. She acknowledged that inflation continues lag the Fed’s 2% target, a state of affairs she blamed “in part on the transitory effects” of lower energy and import prices.
Advertisement
Federal Reserve Chair Janet Yellen gave a strong hint that the USA central bank is leaning towards higher rates in the not-too-distant future. But she said those options would require more study. The group of policy activists, labor unions and community groups has been lobbying the Fed to keep rates low to allow the economy to strengthen enough to benefit more Americans.
