Yellen says case for rates rise stronger

Stock markets and the loonie had barely moved Thursday in anticipation of Yellen’s speech Friday at the central bank’s annual summer symposium in Jackson Hole, Wyo. Yellen is to address the gathering on Friday.

In a much-anticipated address, US Federal Reserve Chair Janet Yellen said the case had “strengthened” in recent months for a rate increase but did not clearly say when this could occur. But she stopped short of signaling any timetable for the next rate hike.

Federal Reserve: In Jackson Hole, Wyoming, Yellen told a conference of central bankers that the US economy might be strong enough for an interest rate hike. She pointed to steady gains in employment and strength in consumer spending.

A rate hike is possible at the Fed’s next policy meetings in September, November and December.

Phil Orlando, a strategist at Federated Investors in NY, said: ‘We continue to believe December was the next logical date for a hike but based on comments from Fed officials lately and the argument from Yellen I guess you can’t take September off the table’.

THE QUOTE: “She suggests the economy is improving, but the GDP numbers for the past three quarters are closer to 1 percent than three percent”, said Bruce Bittles, chief investment strategist at R.W. Baird.

In December, the Fed raised its benchmark rate modestly in response to a brighter economic picture, notably a job market nearing full health.

The dollar index is down 4.1% this year, as investors have scaled back expectations of Fed rate increases.

Loose U.S. monetary policy has been a driving force in financial markets, keeping the dollar soft and supporting stocks and bonds.

The Fed raised rates in December for the first time in almost a decade and projected another four hikes in 2016, only to scale that back to two moves in the wake of a global growth slowdown, financial market volatility and slow progress in meeting its 2% inflation goal.

But Grohowski sees stocks continuing to grind higher, and he says it’s still more likely the Fed hikes rates in December. “We think the evidence is that the economy has strengthened”.

Belisle said the majority of investors expecting a raise in the rate before the end of the year.

Some have said that if the Fed does decide to act in September, it would need to further prepare investors.

The Fed raised rates in December, its first hike in almost a decade, but it has held off further increases so far this year due to a global growth slowdown, financial market volatility and generally tepid USA inflation data. The Fed is moving alone to tighten policy, as other central banks are easing. In the eight months since then, Treasury yields have fallen to record lows, and mortgage rates have tumbled right along with them.

“Anything that’s not going to be straight-out dovish is going to be disappointing”, she said. She added that the FOMC expected the inflation to rise to 2% over the next few years. But she said those options would require more study. Growth hasn’t topped 3% for a full year since 2005.

The US dollar rose 0.90 per cent against a basket of currencies, according to the Bloomberg dollar spot index. “If we have a lousy number, sure, you would take the Fed off the table”.