Yellen suggests rate hike is coming but offers no timetable

Janet Yellen is getting closer to raising interest rates.

“Looking ahead, the FOMC (Federal Open Market Committee) expects moderate growth in real gross domestic product, additional strengthening in the labour market, and inflation rising to 2 per cent over the next few years”, she said.

But Yellen was vague on timing.

The rate-setting Federal Open Market Committee meets September 20-21.

If the Fed fails to take any action concerning a rates hike in September, it has two more meetings this year, one in November right before USA elections and another in December. But she’s stopping short of signaling any timetable for the next rate hike. Now she’s giving no time reference.

Because slower growth means future US interest rates will likely also need to be lower on average, some analysts have suggested that the Fed will have less room to fight future recessions because there will be less room to cut rates. December is more likely.

Yellen based her comments on strong labor market.Hiring was much larger in June and July than expected.

In December, the Fed raised its benchmark rate modestly in response to a brighter economic picture, notably a job market nearing full health.

Futures markets are still pricing a roughly 24 percent chance that rates will rise in September, and a 57 percent likelihood of a December move, according to the CME’s FedWatch.

Prior to Yellen’s comments being released Craig Erlam, analyst at Oanda trading group, indicated investors above all wanted “clarity on the near-term path of interest rates”. Yellen is to address the gathering on Friday. The Dow and S&P 500 remained slightly positive.

The conference’s theme is “Designing Resilient Monetary Policy Frameworks for the Future”, reflecting concern that the global economy has become trapped in a slump of low growth and low inflation and uncertainty about how central banks should respond.

“While economic growth has not been rapid, it has been sufficient to generate further improvement in the labor market”, Yellen said.

An increase at the Fed’s December meeting is seen as more likely if the US central bank raises rates once this year. She did not indicate when the US central bank might raise rates.

But Fed officials are concerned that investors have become too complacent, betting that the Fed is likely to wait until next year before raising rates even as job growth has shown strength.

In an interview later Friday with CNBC, Fed Vice Chair Stanley Fischer said two rate increases before the end of the year were possible and suggested one could happen as soon as September. Most analysts tell VOA a rate hike in November – so close to a USA presidential election – is unlikely.