Yellen Signals Early Rate Increase on Strength of Economy

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

USA stocks closed lower in choppy trading and the US dollar surged on Friday as investors grappled with the possible timing of an interest rate hike after comments from several Federal Reserve officials, including Chair Janet Yellen.

Speaking at a three-day worldwide gathering of central bankers and academics in Jackson Hole, Wyoming, Yellen said the “U.S. economy was nearing the Federal Reserve’s statutory goals of maximum employment and price stability”. But he cautioned in a CNBC interview that the Fed’s decision would depend on economic data, such as Friday’s report on August job growth.

Still, some economists have said they think conditions are ripe for the Fed to boost rates next month.

Some economists say they think conditions are ripe for Yellen to alert investors that the central bank may be inclined to act at its next policy meeting, September 20-21 – especially in light of recent remarks from other Fed officials.

Asked whether Fed watchers should be looking for such a move in September, and possibly for two hikes this year, Fischer said Yellen’s remarks were “consistent with answering “yes” to both of your questions”.

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’. She also described consumer spending as “solid”, but noted that business investment was weak and exports were taking a hit from a strong USA dollar.

The odds of a hike in September climbed to 30 percent from 21 percent on Thursday, according to CME Group’s FedWatch tool. USA stocks, which had been higher, then fell. But since then, global economic pressures, financial market turmoil and a brief slump in the US job market have kept the Fed on the sidelines.

Yellen did not lay out a clear roadmap for what the Fed needs to see to raise rates.

Yellen earlier this year had said Britain’s surprise June vote to exit the European Union had been one factor causing the Fed to forestall an increase in rates. The Nasdaq edged up 6 points, or 0.1 percent, to 5,218.

Ms 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. “She’s certainly tried to make a case, but the market doesn’t believe that the Fed is going to actually raise rates”, said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management.

Yellen added that the Fed continues to believe that future rate increases will remain “gradual”. She said the Fed still planned to wind down its massive balance sheet, but that such an effort would take time.