Federal Reserve Chair Janet Yellen struck a generally positive tone on the U.S. economy on Monday — despite last week’s disappointing jobs report.
Speaking at an event in Philadelphia, Yellen continued to say the Fed needs to raise rates, but she stepped back from putting a time period on that plan.
The Fed funds rate probably needs to rise gradually over time, she said, and hikes should come before all of the central bank’s economic goals have been fully reached. There was one key section of the speech she prepared Monday that strongly signaled two hikes on the way:
“Next week, concurrent with our policy meeting, the FOMC participants will release a new set of economic projections. Those could, of course, differ from the previous set of such projections in March. But speaking for myself, although the economy recently has been affected by a mix of countervailing forces, I see good reasons to expect that the positive forces supporting employment growth and higher inflation will continue to outweigh the negative ones.”
The translation is fairly simple: Each quarter, the Federal Open Market Committee releases its Summary of Economic Projections, which is basically where members feel the economy is going and what the likely path of the Fed’s interest rate target will be.
At the March meeting, FOMC officials indicated that two rate hikes are likely this year. Yellen’s remarks indicate her opinion has not changed since then.
And with the chair highly adept so far at consensus building, the likelihood should increase that the Fed will hike rates twice this year.
Heading into the Yellen speech, the market was assigning very little chance of a hike this summer — just a six percent probability for June and 39 percent for July. September had a 52 percent probability. But the CME’s Fed tracker was indicating just a 21 percent chance for a second hike by December. Those probabilities could now shift considerably.
Yellen also warned against overreacting to one monthly report, saying the overall labor market is quite positive. Although the recent slowdown in jobs bears “close watching,” she said, wage growth may “finally be picking up.”
Fed’s Yellen sees two interest rate hikes this year likely
June 8, 2016 by Leave a Comment