Fed rate hike likely in com­ing months

The Pak Banker - - FRONT PAGE -

The Fed­eral Re­serve should raise in­ter­est rates "in the com­ing months" if the econ­omy picks up as ex­pected and jobs con­tinue to be gen­er­ated, U.S. cen­tral bank chief Janet Yellen said on Fri­day, bol­ster­ing the case for a rate in­crease in June or July.

"It's ap­pro­pri­ate ... for the Fed to grad­u­ally and cau­tiously in­crease our overnight in­ter­est rate over time, and prob­a­bly in the com­ing months such a move would be ap­pro­pri­ate," Yellen said dur­ing an ap­pear­ance at Har­vard Uni­ver­sity. Her com­ments, while bal­anced, sug­gested the pow­er­ful Fed chair is on board with sev­eral of her col­leagues who in re­cent weeks have said the cen­tral bank is pre­par­ing to fol­low up on an ini­tial pol­icy tight­en­ing in De­cem­ber.

Al­though Yellen ex­pressed cau­tion about too steep a rise in U.S. rates, she sounded more con­fi­dent than she has in the past that the U.S. econ­omy has re­bounded from a weak win­ter and that in­fla­tion would edge higher to­ward the Fed's 2 per­cent tar­get.

"The econ­omy is con­tin­u­ing to im­prove ... growth looks to be pick­ing up," Yellen told a group of pro­fes­sors and alumni at the Ivy League col­lege in Cam­bridge, Mas­sachusetts. She ex­pects the labour mar­ket to con­tinue to im­prove de­spite much progress be­cause "fur­ther gains are pos­si­ble," she said un­der an open-air tent on cam­pus.

Prices for U.S. Trea­suries fell af­ter Yellen's re­marks, while stocks rose. The U.S. dol­lar (.DXY) was trad­ing higher against a bas­ket of cur­ren­cies.

The prob­a­bil­ity of a rate hike at the Fed­eral Open Mar­ket Com­mit­tee's June 14-15 meet­ing rose to 34 per­cent from 30 per­cent be­fore Yellen's re­marks, ac­cord­ing to CME Group, where the fu­tures con­tracts are traded. Bets on a rate in­crease at the July 26-27 pol­icy meet­ing edged up to 60 per­cent, more than dou­ble the es­ti­mate from a month ago.

The Fed raised its key bench­mark in­ter­est rate in De­cem­ber for the first time in nearly a decade, but has held off since then due to con­cerns ear­lier this year about a global eco­nomic slow­down and fi­nan­cial mar­ket volatil­ity. Those con­cerns have sub­sided some­what in re­cent months.

In re­cent weeks, sev­eral Fed pol­i­cy­mak­ers have re­acted to stronger U.S. eco­nomic data in­clud­ing on hous­ing and re­tail sales by putting a rate hike squarely on the ta­ble for ei­ther June or July. Ear­lier on Fri­day, the gov­ern­ment re­vised higher its first-quar­ter GDP growth es­ti­mate to 0.8 per­cent, from 0.5 per­cent. Yellen's com­ment "re­in­forces the sig­nals on early rate hikes com­mu­ni­cated re­cently by her FOMC col­leagues," Mo­hamed ElErian, chief eco­nomic ad­viser at Al­lianz, said via Twit­ter of the pol­icy-mak­ing Fed­eral Open Mar­ket Com­mit­tee. Weak oil prices and a strong dol­lar have been blamed for help­ing to keep U.S. in­fla­tion be­low the cen­tral bank's tar­get.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.