Expect a Rate Hike Later This Month, Signals Fed Chair Janet Yellen

Tokyo ended the morning session 0.1 per cent lower, with dealers brushing off news that Japanese consumer prices rose last month for the first time in nearly a year.

She concluded that amid “still-tepid economic data suggesting little additional momentum in the underlying economy, Federal Reserve officials continue to issue warnings to the market that a near-term adjustment in policy is imminent, while noting the market has been disappointed before after buying into individual Fed members’ comments”.

Fed Vice Chairman Stanley Fischer echoed this sentiment at a monetary policy forum in NY on the same day.

“We now judge that it will be appropriate to gradually increase the federal funds rate if the economic data continue to come in about as we expect”, Yellen said at a speech in Chicago, according to prepared remarks. United States bank stocks were lifted considering higher rates would provide them an opportunity to boost margins, but property stocks fell as higher borrowing costs would make it tougher for consumers to buy property.

Unemployment has “essentially met” what officials see as full employment, Yellen said Friday.

They have repeatedly downplayed the effect of short-term market fluctuations in their policy moves, aimed at maintaining a strong labor market and 2% inflation over the medium term.

“The ongoing expansion has been the slowest since World War II, with real GDP growth averaging only about 2 percent per year” because of “slower growth in the labor force in recent years. and disappointing productivity growth both in the United States and overseas”, Yellen said. He then signaled a willingness to raise rates soon.

World markets have surged since his November election win on expectations his plans for infrastructure spending and tax cuts will fire the world s top economy.

The global outlook has shifted, if you listen to Yellen and Governor Lael Brainard.

“On the whole, the prospects for further moderate economic growth look encouraging, particularly as risks emanating from overseas appear to have receded somewhat”, Yellen said.

Japan’s consumer confidence decreased unexpectedly in February, though marginally, survey data from the Cabinet Office showed Friday.

What changed? The stock market continued to set new records without much underlying economic impetus.

“I therefore continue to have confidence that a gradual removal of accommodation is likely to be appropriate”, Yellen said.

The dollar is up around 1 percent this week, its fourth straight weekly gain on the trot, but a sour January means it is still well below highs hit on the back of optimism about the shape of Donald Trump’s presidency in December.

The Nasdaq is up 487.64 points, or 9.1 percent.

“Based on the prepared statements, Chair Yellen will endorse a rate hike in March unless next week’s employment situation report is just miserable”, said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.

What has changed significantly is that threats from overseas are looking less scary.

After a week of aggressively hawkish commentary, Federal Reserve policymakers have all but assured investors they’ll raise interest rates again at their March policy meeting – a mere week-and-a-half away.