Case stronger now for interest rate hike: US Federal Reserve

The New Zealand dollar was little changed, holding above 73 USA cents as traders debate whether Federal Reserve chair Janet Yellen will give a clear signal on the timing and pace of U.S. interest rate hikes when she addresses …

Speaking at the annual three-day symposium in the U.S. state of Wyoming, Yellen showed she was cautiously upbeat about the USA economy. But she didn’t offer any timetable for when the country’s central banking system will raise interest rates – which determine how much certain institutions owe lenders when they borrow money, with wide effects on the economy as a whole.

The Fed already thinks it is close to meeting its goals of maximum employment and stable prices, and Yellen described consumer spending as “solid” while noting that business investment was weak and exports had been hurt by a strong U.S. dollar.

Yellen notes that inflation is still running below the Fed’s 2 percent target but is being depressed mainly by temporary factors.

We have seen the Fed chair Janet Yellen telling a global monetary policy conference at Jackson Hole that that the case for a rate increase had grown stronger, while Fed vice-chair Stanley Fischer has suggested that a move could come at the central bank’s September policy meeting if the economy was doing well.

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

Still, some economists have said they think conditions are ripe for the Fed to boost rates next month.

Wall Street spent the week biding its time before Federal Reserve Chair Janet Yellen made a speech on Friday.

US Treasuries extended price gains as investors saw the Fed as unlikely to raise rates at its September meeting, with yields on the 30-year bonds falling to 2.22 per cent. That was when it raised its benchmark lending rate from near zero, where it had been since the depths of the financial crisis in 2008.

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. She added that the FOMC expected the inflation to rise to 2% over the next few years. But she said those options would require more study. Growth hasn’t topped 3% for a full year since 2005.

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

So we can expect the Fed’s monetary tightening to resume soon. 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. So the question is: are you taking a lot of risk there?

“Our communities are being sacrificed for an inflation enemy that isn’t here”, said Rod Adams, a community organizer for Neighborhoods for Change in Minnesota.