Experts: U.S. rate hike ahead
OTTAWA — A speech by Janet Yellen is often more about what wasn’t said than what was. As when most central bank chiefs address the public, it’s all about reading between the lines for the message.
On that score, the U.S. Federal Reserve chairwoman didn’t disappoint: Expect the central bank to soon restart interest rate hikes, and many analysts see the liftoff coming in December.
“I believe the case for an increase in the federal funds rate has strengthened in recent months,” Yellen said Friday in a greatly anticipated speech at the annual Jackson Hole, Wyoming, economic summit.
Specifically, she highlighted the “continued solid performance of the labour market and our outlook for economic activity and inflation” as signs the Fed was closing in on its goal to increase its trendsetting lending rate, now at a range of 0.25 to 0.5 per cent.
Her more hawkish tone came after revised economic data released earlier Friday showed U.S. gross domestic product grew by a softer 1.1-per-cent annual rate in the second quarter of 2016, down slightly from the previous growth estimate of 1.2-per cent.
“While economic growth has not been rapid, it has been sufficient to generate further improvement in the labour mar- ket,” Yellen said in her speech at the 40-year-old desert retreat, which usually attracts central bankers from other major economies, along with economists and academics.
“Looking ahead,” she said, the Fed “expects moderate growth in real gross domestic product, additional strengthening in the labour market, and inflation rising to two per cent over the next few years.”
“Based on this economic outlook,” Yellen added, the central bank “continues to anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives.”
Yellen and other members of the Federal Open Market Committee — the main policymaking body — are scheduled to meet Sept. 20-21, followed by another meeting on Nov. 1-2.
Many economists have already pencilled in a rate increase at the Fed’s Dec. 13-14 meeting, which gives the FOMC more time to monitor the pace of economic improvement.
The Fed raised its key interest rate by a quarter of a per cent from near-zero in December 2015 — the first rate move in seven years — and planned to continue lifting lending levels over the course of this year.
Those additional hikes were stalled when weaker U.S. economic data began to flow in, as global influences — such as slower China growth, the collapse of oil prices and the yet unknown impact of the U.K. vote to leave the European Union — added to investor uncertainty.
Friday’s GDP report revealed some lingering weakness in the U.S. economy, coming after a disappointing first-quarter increase of 0.8-per cent. Overall, the first half of 2014 produced growth of just one per cent.
“While economic growth has not been rapid, it has been sufficient to generate further improvement in the labour market,” Yellen said in her Jackson Hole speech.
“Looking ahead, the FOMC expects moderate growth in real gross domestic product, additional strengthening in the labour market, and inflation rising to two per cent over the next few years.”