Yellen hints at Federal Reserve interest rate hike

“Even as observers have worked into a virtual frenzy looking for Federal Reserve Chair Janet Yellen to deliver a more transparent message on the outlook for interest rate moves, she’s still holding her cards fairly close”, Mark Hamrick, Washington bureau chief and senior economic analyst at Bankrate.com, wrote Friday morning.

As a result, they overlooked Yellen’s statement that “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 [Fed’s key interest rate] has strengthened in recent months”.

“When shocks occur and the economic outlook changes, monetary policy needs to adjust”, Yellen said. But others said December remains in their view the more likely time for a resumption of rate increases.

This split was evident in the minutes from the Fed’s July board meeting, with some Fed officials arguing in favour of delaying rate rises, while others “expressed concern that an extended period of low interest rates risked intensifying incentives for investors to reach for yield”, and fuel financial instability.

Yellen said the Fed already thinks it is close to meeting its goals of maximum employment and stable prices, and she described consumer spending as “solid”, while adding that business investment was weak and exports had been hurt by a strong U.S. dollar. Fischer, the Fed’s No. 2 policymaker, said the Labor Department’s jobs report for August will likely weigh on the decision over a hike. But he said that would depend on the strength of forthcoming economic data.

But under Reis’s proposal, the Fed would also use the reserves rate as a stimulus mechanism, indexing its payments to the inflation rate.

Comments from core members are extremely important and Fed vice-chair Fischer stated after Yellen’s speech that her comments were consistent with a possible September hike.

According to Investing.com’s Fed Rate Monitor Tool, investors are pricing in a 33% chance of a rate hike by September.

In a mid-day interview on CNBC after Yellen spoke, the Fed’s No. 2 policymaker, Vice Chair Stanley Fischer, suggested that rate hikes were on track for this year.

Earlier this week, Ms. Telagen said the PSEi was looking to consolidate at 8,000 ahead of Ms. Yellen’s talk, and “will likely break out to around 8,200 or break down at 7,800” depending on the “normalization path” that the United States central bank will take before its meeting next month.

A stronger US dollar usually weighs on gold, as it dampens the metal’s appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.

Equity traders were on edge, with Japan’s Nikkei falling 1.2 percent, after another below-par inflation reading added to pressure on authorities to act on the economy as years of stimulus fail to have any serious effect on growth.

Yellen was the lead-off speaker Friday for the annual conference sponsored by the Federal Reserve Bank of Kansas City.

In advance of Yellen’s speech Friday, several Fed officials met Thursday with about 120 activists from the Campaign for Popular Democracy’s Fed Up coalition.

Investors’ sentiment has oscillated in recent weeks on the pace of Fed monetary tightening after it raised borrowing costs in December for the first time since June 2006.