Yellen to cheer markets with hopes of rate hike
washington — US household wealth has hit record levels. US stock prices recently hit all-time highs. Inflation is nearing the Federal Reserve’s 2.0 per cent goal, and the world economy including the once-sick eurozone has skirted the risk of a deep new downturn.
When Fed Chair Janet Yellen holds her first press conference of 2017 on Wednesday she can arguably declare a victory of sorts with an expected interest rate rise that will leave monetary policy looking increasingly normal.
The rate increase expected on March 15 will be the second in four months, a pace unseen since the peak of the US housing boom in 2006. A rate hike will also bring the Fed’s target rate to between 0.75 - 1.00 percentage points, near the bottom of the range within which the Fed operated before the 2007-2009 financial crisis.
“You don’t need any intrigue or fundamental shifts in beliefs about the economy to realise why a rate increase might be likely,” Johns Hopkins University professor and former Fed adviser Jon Faust said of the central bank’s plans.
“The Fed would just as soon be back to normal...Unless something really bad happens they will raise rates in March and that gets them on a path to raise rates more this year.”
US February employment data published on Friday further cleared the way to an interest rate rise, with the economy adding another 235,000 jobs. The unemployment rate held roughly steady at 4.7 per cent. For Faust and others, the conversation is now focused on whether the Fed, when it releases new economic forecasts this week, could even raise its forecast for rate rises also.
The month of March has been cruel to Yellen in the past. At the Fed’s March meetings in 2015 and 2016 the central bank downgraded its economic forecasts after inflation expectations plunged two years ago and after last year’s meltdown in the benchmark S&P 500 stock index.
A year on, world stock markets have surged and even global economic laggards like Japan and the eurozone are looking better. European Central Bank president Mario Draghi gave his own mission accomplished declaration last week saying that “...our monetary policy has been successful.” If anything, market analysts, economists, and Fed officials tout the possibility of stronger economic growth, resulting from the possible impact of US tax cuts and infrastructure spending, or the run-up in household wealth from rising stock and real estate values.