Fed’s Yellen: US economy close to full employment

In closing, the economy has come a long way toward the FOMC’s objectives of maximum employment and price stability. When the Committee begins to normalize the stance of policy, doing so will be a testament, also, to how far our economy has come in recovering from the effects of the financial crisis and the Great Recession. For policymakers, it meant that the Fed had less time to stay at zero than many of them had believed. Her remarks followed a speech Wednesday that reaffirmed the case for the first interest rate hike in nine years as soon as this month, if the data is supportive. Translation: “unless there is a major hiccup with a bad jobs report on Friday morning, the Fed will probably lift interest rates off their historic lows around 0% when it meets on December 15 and 16”. “Today, we revert back to the divergence outlook between the Fed and the European Central Bank”. “So, that’s already in market prices”.

Another development was RBI’s decision to make purchases worth Rs 10,000 crore from the secondary market under its open market operations (OMO) programme to cover the liquidity deficit in the banking system.

Economists expect Friday’s report to show that employers added a healthy 200,000 jobs in November, but the monthly figures are volatile and subject to sometimes-large revisions.

A surge in mass shootings and terror attacks have the potential to damage the economy, Federal Reserve chairman Janet Yellen said on Thursday as the United States reeled from the latest incident in California. Nonetheless, she maintained in her speech Wednesday that upcoming data could still sway the Fed’s decision on interest rates.

“We have seen a welcome pickup in the growth rate of average hourly earnings for all employees and of compensation per hour in the business sector”, she said. It has used ultra-low borrowing costs as a way to stimulate economic activity and fight the worst recession since the Great Depression of the 1930s.

“I think the market’s a little bit more focused on the Fed moving on rates and the pace going forward”, analyst Robert Pavlik said.

“The market is responding to what Janet Yellen is saying and (her) being more optimistic about growth”, said Patrick Maldari of the North American fixed income team at Aberdeen Asset Management.

Yellen has said multiple factors – such as rising inflation and declining unemployment – indicate that the USA economy is strong enough to withstand a rate hike.

The ECB move triggered a spike in the euro that caught investors by surprise, forcing them to shift positions that hit most asset classes.

This delay would “likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals”, she told an audience at the Economic Club in Washington.