Yellen: Case for Rate Hike “Strengthened”; Market: “Meh”

“The backdrop of generally hawkish Fed speak that has pushed Fed (interest rate) hike expectations for this year to about 65 percent from about 40 percent earlier this month”.

However, a slowdown in global economy since the start of this year and other global financial risks have made Fed policymakers cautious to hold off on any further rate hikes. But she stopped short of signalling any timetable for the next rate hike.

The Australian share market is set for a soft start to the week after USA stocks dipped as senior Federal Reserve officials left the door open for a rate hike as early as next month.

The Fed raised interest rates last December for the first time in almost a decade.

At a gathering of central bankers from around the world in Jackson Hole, Wyoming, Yellen said improvements in the US labor market and expectations for moderate growth have boosted the case for a rate rise.

Yellen said the economy was nearing the central bank’s goals of maximum employment and price stability, but she maintained that future hikes should be “gradual”. Raw material suppliers, which have taken heavy losses this week, turned higher.

European stocks advanced as news of her comments emerged with London and Frankfurt rising 0.3 per cent and Paris gaining 1.0 percent in late afternoon trading. Belisle said the majority of investors expecting a raise in the rate before the end of the year. She did not indicate when the US central bank might raise rates.

Yellen’s speech comes after some colleagues have been fairly upbeat in their assessments of the economy, which could mean they’re eager to lift rates in the coming months. Judging by the CME Group’s FedWatch tool, markets assigned a probability of just 18% to a September hike going into the speech. The yield on the 10-year note fell to 1.54 percent from 1.56 earlier Friday.

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.

The Standard & Poor’s 500 index slipped 2 points, or 0.1 percent, to 2,169.

Despite a chorus of hawkish comments from Fed officials in recent sessions, currency speculators had trimmed their bets on the USA unit for a fourth straight week through the week ended August 23, reducing their net dollar-long positions to their lowest level since early July.

The dollar eased to 100.47 yen from 100.55 yen Thursday in NY, while the euro nudged up to US$1.1291 from US$1.1281.