Yellen cites economic gains as Dec. rate hike seems likely

A further pickup in inflation could help solidify a December rate increase.

Traders assign about a 94 percent probability, the highest level this year, to a Fed boost at its final meeting for the year on December 13-14, futures contracts indicate. The December meeting will include a news conference by Yellen, when she will be able to explain the Fed’s action and perhaps provide guidance on how many further rate increases it foresees in 2017.

“It’s hard not to think this is incredibly reflationary for the global economy”, said Mark Nash, the head of global bonds in London at Old Mutual Global Investors, which oversees about $37 billion. That’s seen a rally in stocks, a sell-off of US bond yields and a concurrent rise in the dollar.

The S&P 500 was up 2.54 points, or 0.12 percent, at 2,179.48.

The Fed’s next interest rate decision meeting is set for December 13 to 14. The inflation metric climbed 0.4% in October and 1.6% over the past 12 months, its highest level in two years. Trump’s promise to grow the US economy through infrastructure spending has markets thinking that could spark inflation and lead the Fed to tighten monetary policy even further.

The New Zealand dollar fell as the greenback rose to a level it has only touched once before since 2003 after Federal Reserve Bank of St. Louis President James Bullard said Donald Trump’s presidential victory is unlikely to prevent a Fed rate hike next month.

ASIA’S DAY: Japan’s Nikkei was flat at 17,862.63 and Hong Kong’s Hang Seng index eased 0.1 percent to 22,262.88. Consumer spending, critical as the major component of US gross domestic product, “continued to post moderate gains”, and help economic growth rebound from a weak first half.

“Equities and foreign exchange rates have been re-priced, but are well within the experience of the past year”, he said. The central bank’s target is 2%. Broad-based USA dollar strength combined with weakness in commodity prices have dented demand for the commodity based currencies.

The dollar was steady against the yen, with at 109.05, holding just below the five-and-a-half month high of 109.74 set on Wednesday.

Yellen is scheduled to begin her testimony on the economic outlook before the congressional Joint Economic Committee at 10 a.m. ET (1500 GMT). With oil prices rising and the dollar stabilizing in 2016, factory output has recovered somewhat but remains choppy.

Boston Fed President Eric Rosengren, a historically dovish policymaker who surprised some in September when he joined the minority in advocating a rate rise, said the USA economy should hit its inflation goal next year and could well go too far in driving unemployment lower.