Fed’s Yellen sees rate hikes, mostly good eco­nomic pic­ture

The Jerusalem Post - - BUSINESS & FINANCE - • By JONATHAN and JA­SON LANGE

PHILADEL­PHIA (Reuters) – In­ter­est-rate hikes are likely on the way be­cause “pos­i­tive eco­nomic forces have out­weighed the neg­a­tive” for the United States now that risks from ear­lier this year have di­min­ished, Fed­eral Re­serve Chair­woman Janet Yellen said on Mon­day.

In the last pub­lic com­ment from any US central banker be­fore a key pol­icy meet­ing next week, Yellen said last month’s jobs re­port was “dis­ap­point­ing” and bears watch­ing, though she warned against at­tach­ing too much sig­nif­i­cance to it on its own.

In her ad­dress, Yellen was care­ful not to give time lines on rais­ing in­ter­est rates, in con­trast to a speech on May 27, when she said “prob­a­bly in com­ing months such a move would be ap­pro­pri­ate.”

On Mon­day, Yellen stressed that sur­prises could emerge that could change her ex­pec­ta­tions, but the speech was broadly buoy­ant. She listed four main risks to the US econ­omy – slower de­mand and pro­duc­tiv­ity, and in­fla­tion and over­seas risks – be­fore down­play­ing them all.

“If in­com­ing data are con­sis­tent with la­bor-mar­ket con­di­tions strength­en­ing and in­fla­tion mak­ing progress to­ward our 2 per­cent ob­jec­tive, as I ex­pect, fur­ther grad­ual in­creases in the fed­eral funds rate are likely to be ap­pro­pri­ate,” Yellen said at the World Af­fairs Coun­cil of Philadel­phia.

The US central bank raised rates from near zero in De­cem­ber in the first US pol­icy tight­en­ing in nearly a decade.

Prospects of an­other hike this month were all but killed by a re­port last week show­ing only 38,000 jobs were cre­ated in May, some­what mut­ing re­cent up­beat data on con­sumer spend­ing, hous­ing and over­all US growth.

Although the re­port was “con­cern­ing, let me em­pha­size that one should never at­tach too much sig­nif­i­cance to any sin­gle monthly re­port,” Yellen said. “Other timely in­di­ca­tors from the la­bor mar­ket have been more pos­i­tive.”

Amid the “coun­ter­vail­ing forces,” she said, “I see good rea­sons to ex­pect that the pos­i­tive forces sup­port­ing em­ploy­ment growth and higher in­fla­tion will con­tinue to out­weigh the neg­a­tive ones. As a re­sult, I ex­pect the eco­nomic ex­pan­sion to con­tinue, with the la­bor mar­ket im­prov­ing fur­ther and GDP grow­ing mod­er­ately.”

Economists now see Septem­ber or pos­si­bly July as the most likely time for a quar­ter-point pol­icy tight­en­ing, while traders in fu­tures mar­kets are bet­ting on later in the year.

The dol­lar ini­tially rose fol­low­ing Yellen’s com­ments but later re­traced. Fi­nan­cial mar­kets did not give an ap­pre­cia­ble sig­nal on whether in­vestors saw more or less chances of a rate hike in the near future. US stock prices were about flat com­pared to their lev­els just be­fore the speech.

While Yellen did not repeat her re­cent re­mark that rate hikes would prob­a­bly be ap­pro­pri­ate in com­ing months, she said she re­mained op­ti­mistic in­fla­tion would rise to the Fed’s 2% goal be­cause oil prices had re­versed their down­ward path and the dol­lar had stead­ied af­ter a long pe­riod of gains.

(Charles Mos­toller/Reuters)

FED­ERAL RE­SERVE Chair­woman Janet Yellen speaks at the World Af­fairs Coun­cil of Philadel­phia yes­ter­day. Yellen stressed that sur­prises could emerge that could change her ex­pec­ta­tions, but the speech was broadly buoy­ant.

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