The US Federal Reserve (Fed) is getting closer to raising interest rates again, the head of the US central bank and 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 policy meeting next month if the economy was doing well.
Although US 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 moderate pace.
“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 adding that business investment was weak and exports had been hurt by a strong US dollar.
However, 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 about even odds of an increase at the Fed’s policy meeting in December.
“She’s just kept the door open for a hike sooner rather than later,” said Subadra Rajappa, an interest rate strategist at Societe Generale SA in Washington.
In an interview with CNBC after Yellen’s speech, Fischer, the central bank’s No. 2 official, said the Fed chair’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 next month 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 on Friday said 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 inflation.
However, Fed Governor Jerome Powell told Bloomberg Television that the central bank could afford to be patient and that he wanted to see inflation rise before lifting rates.
“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.
In her speech, Yellen said that Fed officials have a wide range of views on where rates will likely be in the coming years.
She said forecasts imply a 70 percent probability they will be between zero percent and 3.75 percent at the end of next year.
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