Fed’s Janet Yellen Says Interest Rate Hike Is More Justified Now

Your current subscription does not provide access to this content. Apart from December, the Fed also has policy meetings scheduled in September and November, although prices for Fed funds futures imply investors see chance of a rate increase at either of those meetings.

Rates have been at historic lows to help boost the economy but on Friday, Federal Reserve Chairwoman Janet Yellen said she sees a stronger case for raising them.

If we believe that USA and European stocks have gotten expensive due to low interest rates, then emerging markets may be next in line for the same somewhat artificial inflation.

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.

And in a speech Sunday, Fischer said the Fed was getting “close to our targets”, including being “within hailing distance” of the Fed’s 2 percent goal for inflation. But about 71 percent of 62 economists surveyed by the Wall Street Journal this month believed that the Fed would wait until December to raise rates.

The Fed had at the end of 2015 raised rates for the first time in almost decade, ending the policies created to respond immediately to the Great Recession.

“Monetary policy is not on a preset course”.

“The economy has strengthened in a way that is following the path of the Fed”, said Guillermo Hernandez Sampere, head of trading at MPPM in Eppstein, Germany.

Yellen, however, stirred even greater confusion in the market, saying that in the timespan between now and the end of 2018 the base borrowing costs might be anywhere between zero and 4.5%, thus confessing the Fed’s approach to policy is reactive rather than proactive.

The Federal Open Market Committee (FOMC) member acknowledged there still might be negative risks looming overseas – for example, the slower Chinese growth rate and the aftermath of the Brexit vote – but she argued that the central bank also needed to recognise “upside” risks. But she said those options would require more study.

Still, she said, “future policymakers might choose to consider some additional tools that have been employed by other central banks”, including buying a wider range of assets or raising the inflation target. Instead, Dr. Yellen made the usual observation that stronger productivity growth would be wonderful, but she offered no new ideas. Recently, the speeches of Fed leaders in the annual symposium have grown in significance, as they use their speeches to outline the direction of future monetary policy.

In advance of Yellen’s speech Friday, George, Fischer and eight other Fed officials met Thursday with about 120 activists from the Campaign for Popular Democracy’s Fed Up coalition. Investors frustrated with low-yielding bonds have flocked to utilities for their steady dividends, but higher rates would make those stocks less attractive.

Such a confession from the central bank head who does not know what their own policies are, complicates the outlook on growth and investment for the U.S. and global economy, as costs and availability of credit are simply unknown in the short-to-medium-term, let alone longer-term projects and goals.