Stocks slip into losses in the afternoon after Yellen speech

The Fed has policy meetings scheduled in September, November and December. But with labor market indicators improving from an abrupt downturn, and with Brexit-related jitters easing, market players are again expectantly awaiting action by the central bank.

And the Fed has clearly been looking for an opportunity to resume normalizing monetary policy.

Fischer said on CNBC TV that the Fed was still on track to raise rates this year. The last time the Fed raised its rates was nine months ago.

Dr Yellen did not indicate when the USA central bank might raise rates, but her comments reinforced the view that such a move could come later this year.

Financial observers pay close attention to the Fed’s communication for hints about its future plans, but Yellen did not provide a specific date for a rate hike. “I still think the market is overpriced based on the fundamentals, but when the dollar’s weak, crude is going to have a hard time not moving higher”. The next round of employment statistics will come out Friday of next week. Those with savings accounts would receive slightly larger interest payments, while people taking out mortgages or business loans would pay higher rates. But Yellen’s remarks failed to tip the scales decisively, since they did not include clear guidance on timing. Market watchers will continue keeping an eye on the data and comments by top Fed officials. They’re anxious that if rates don’t rise they’ll be left without their best tool – lowering the rate – when the next economic downturn hits.

The issue has arisen amid a decline in the neutral rate of interest – the rate that neither stimulates nor slows down the economy. Some experts estimate that the neutral real interest rate has fallen from the mid-3% range around 2000 to almost zero now amid shrinking productivity growth and an aging labor force.

That would be bullish for Treasurys, pushing yields lower, he said.

Banking shares, which stand to gain in a higher rate environment, advanced.

WASHINGTON: For all the talk of a radical shift in central banking policy, from the permanent use of negative rates to helicopter money drops, Federal Reserve Chair Janet Yellen appears to believe she can tackle any future downturn using the tools now at her disposal. Debate inside and outside the Fed on the proper approach will likely heat up.

“Interest rate policy is by far the most flexible, the least intrusive to markets, and has proven capable of targeting low inflation”, he said in a presentation after Yellen spoke.

Even if the Fed does decide to push interest rates up, however, it will most likely only be by around a quarter of a percent.

She also noted that while inflation is still running below the Fed’s 2 percent target, it’s being depressed mainly by temporary factors. St. Louis Fed President James Bullard has called for one increase this year, bringing the rate to 0.75%, and no further tightening for the next two years.

“Overall, along with the more upbeat tone of the recent data, we think the odds of a September rate hike have probably increased”, said Andrew Hunter, U.S. Economist at Capital Economics.

The perceived chances of a rate hike in September climbed to 30 percent from 21 percent the previous day, according to CME Group’s FedWatch tool.