Yellen, Other Fed Officials Signal Imminent Rate Hike

Elsewhere in the speech, she indicated that the economy was meeting the Fed’s expectations.

“The ongoing expansion has been the slowest since World War II, with real GDP growth averaging only about 2 percent per year” because of “slower growth in the labor force in recent years. and disappointing productivity growth both in the United States and overseas”, Yellen said.

The committee will evaluate whether a further adjustment of the rate cut is likely.

Gold prices were only slightly lower Friday, having withstood remarks from Federal Reserve Chair Janet Yellen that all but assured an interest rate hike in March.

People’s Bank of China continued to set the yuan reference rate weaker, to its three-week low at 6.8896 against the United States dollar this morning, down 87 points or 0.1 per cent.

On Tuesday, New York Fed President William Dudley, generally seen as a dovish policymaker, said the case for a March hike had “gotten a lot more compelling”.

Yellen noted that Brexit negotiations and concerns about European integration could continue to pose a risk, but Brainard said Europe’s “recovery has proven to be increasingly resilient”.

What has shifted the sentiment of most Fed officials decisively toward a rate increase has been a wave of robust economic data – notably on job growth, manufacturing and consumer confidence – along with surging stock prices.

At the start of 2016, central bankers expected to make four rate increases, but a slump in first-quarter economic data and market volatility coming from overseas kept them on hold until December, when they squeezed in their one and only hike. As for future policy moves, Odds get a little complex with three meetings and multiple rate changes possible. With markets already having now fully priced in a rate hike on March, she had to walk a careful path so as not to mislead the markets about whether a rate hike is, or is not, tentatively planned.

A more than 10 percent jump in equity markets since the November election is adding to household wealth, a good omen for continued household spending.

In her speech, Yellen said the prospects for continued moderate growth were encouraging and risks from overseas appear to have receded. The Chinese economy has stabilized after a fragile 2015 and 2016 that saw growth steadily decline.

“On the whole, the prospects for further moderate economic growth look encouraging, particularly as risks emanating from overseas appear to have receded somewhat”, Yellen said.

On Wednesday, Lael Brainard, a Fed board member and previously a leading advocate of delaying rate increases, said she thought the case for another hike was strengthening.

“The widening interest rate differential between the US and Japan helped the dollar versus the yen”, said Junya Tanase, chief currency strategist at JPMorgan Chase Bank.

But she cautioned that monetary policy “cannot be and is not on a preset course”.

While the economy recovers from the great recession, the central bank signaled a gradual increase of interest rates.

The charts below illustrate the steady US economy and sunnier worldwide situation that have given policy makers the confidence to prime markets for a March 15 hike.