Fed's Yellen sees
stronger case for interest rate hike
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[August 27, 2016]
By Jason Lange and Ann Saphir
JACKSON HOLE, Wyo. (Reuters) - The Federal
Reserve is getting closer to raising interest rates again, the head of
the U.S. central bankand other policymakers said on Friday in comments
that left the door open for a hike as early as next month.
Fed Chair Janet Yellen told a global monetary policy conference that the
case for a rate increase had grown stronger, while Fed Vice Chair
Stanley Fischer suggested a move could come at the central bank's
September policy meeting if the economy was doing well.
Although U.S. government data earlier on Friday showed the economy
growing only sluggishly in the second quarter, Yellen said a lot of new
jobs were being created and economic growth would likely continue at a
"I believe the case for an increase in the federal funds rate has
strengthened in recent months," Yellen said in a speech at the Fed's
annual monetary policy conference in Jackson Hole, Wyoming.
Yellen said the Fed already thinks it is close to meeting its goals of
maximum employment and stable prices, and she described consumer
spending as "solid" while noting business investment was weak and
exports had been hurt by a strong U.S. dollar.
But she did not give guidance on what the central bank needs to see
before raising rates. Following her remarks, investors continued to bet
there were roughly even odds of an increase at the Fed's December policy
"She's just kept the door open for a hike sooner rather than later,"
said Subadra Rajappa, an interest rate strategist at Societe Generale in
In an interview with CNBC after Yellen's speech, Fischer, the central
bank's No. 2 official, said the Fed chief's comments were a sign of how
close policymakers could be to raising rates if data kept pointing to a
good economic outlook.
Asked whether people should "be on the edge of our seat" for a rate hike
in September and for more than one policy tightening before the end of
the year, Fischer said, "I think what the Chair said today was
consistent with answering yes to both of your questions."
Atlanta Fed President Dennis Lockhart also said on Friday that two rate
hikes were possible this year, and Cleveland Fed President Loretta
Mester argued for a hike soon to avoid falling behind the curve on
The Fed officials' comments pushed the dollar .DXY higher against a
basket of currencies. U.S. stock prices see-sawed, ending the trading
session generally lower, while prices of U.S. Treasuries were mostly
[to top of second column]
Federal Reserve Chair Janet Yellen attends a news conference after
chairing the second day of a two-day meeting of the Federal Open
Market Committee to set interest rates in Washington, DC, U.S. on
June 17, 2015. REUTERS/Carlos Barria/File Photo
Markets remained skeptical of the Fed's rate hike projections largely because of
the perceived wide gap between what it has signaled and ultimately delivered.
The Fed raised rates in December for the first time in nearly a decade and
projected another four hikes in 2016, only to scale that back to two moves in
the wake of a global growth slowdown, financial market volatility and slow
progress in meeting its 2 percent inflation goal.
A split within the Fed over whether to hike rates soon or take a more cautious
approach also has muddied the waters.
Fed Governor Jerome Powell told Bloomberg Television on Friday the central bank
could afford to be patient and that he wanted to see inflation rise before
"When we see progress toward 2 percent inflation and a tightening in the labor
market and growth strong enough to support all that, we should take the
opportunity," Powell said. (Full Story)
In her speech, Yellen noted that Fed officials have a wide range of views on
where rates will likely be in the coming years. She said current forecasts imply
a 70 percent probability they will be between 0 percent and 3.75 percent at the
end of 2017.
In addition to December, the Fed also has policy meetings scheduled in September
and November, although prices for fed funds futures imply investors see scant
chance of a rate increase at either of those meetings.
(Reporting by Jason Lange and Ann Saphir; Additional reporting by Lindsay
Dunsmuir in Washington and Dion Rabouin in New York; Editing by Paul Simao)
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