JACKSON HOLE, WYOMING: US Federal Reserve Chair Janet Yellen says the Fed is moving toward raising interest rates in light of a solid job market and an improved outlook for the US economy and inflation. But she's stopping short of signalling any timetable for the next move.
Yellen offered a generally upbeat assessment of the economy on Friday in a highly anticipated speech to an annual conference of central bankers in Jackson Hole, Wyoming. She pointed to strong gains in employment and strength in consumer spending.
She also noted that while inflation was still running below the Fed's 2% target, it was being depressed mainly by temporary factors.
“In light of the continued solid performance of the labour market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months,” Ms Yellen said.
The remarks appeared to leave the door open for a rate increase at the Sept 20-21 policy meeting. But observers said Ms Yellen hedged her comments in ways that give the central bank an out if economic data in the next few weeks turn out to be disappointing. The decision could hinge on whether a jobs report on Sept 2 shows steady gains in hiring.
“Our decisions always depend on the degree to which incoming data continues to confirm the [Fed’s] outlook,” she said.
If the Fed does not act in September, it may have to wait until December. It has a meeting scheduled for November, just before the US elections, but is seen as unlikely to do anything that could rattle markets at that time.
Speaking two months after Britain's surprise vote to leave the European Union, and 10 weeks before the US presidential vote, Yellen said it was hard to predict the path of interest rates "because monetary policy will need to respond to whatever disturbances may buffet the economy".
Most economists still believe December remains a more likely time for a resumption of rate increases. And some have said that if the Fed does decide to act in September, it would need to further prepare investors. According to data from the CME Group this week, investors foresee only about a 21% probability of a rate hike in September and only about a 52% chance by December.