Fed chief Yellen says March rate hike by US may be ‘appropriate’
The Federal Reserve is set to raise its benchmark interest rate later this month as long as economic data on jobs and inflation holds up, Fed Chair Janet Yellen said on Friday, in comments that likely cement a rate hike at its next meeting.
Several of Yellen’s US central bank colleagues in recent days had also put a rise at the next rate-setting meeting on March 14-15 of the committee firmly in view.
“At our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” Yellen said in prepared remarks to a business luncheon in Chicago.
Stocks were down slightly, and futures tied to rate-hike expectations moved little. The comments from Fed speakers this week had already pushed market pricing of a March hike to 80 per cent.
“A rate hike isn’t just baked into the cake, the cake is practically decorated and ready to have the candles lit,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.
In her comments, Yellen also said rates are likely to rise faster this year as the economy for the first time in her tenure appears clear of any imminent hurdles at home or abroad.
“On the whole, the prospects for further moderate economic growth look encouraging, particularly as risks emanating from abroad appear to have receded somewhat,” Yellen said.
“If there has been a conscious effort (to raise expectations for a rate hike) I’m about to join it,” Fed vice-chairman Stanley Fischer told an economists’ forum, when asked about comments by other Fed officials this past week that have boosted market odds of a March rate hike.
“What my colleagues have been saying is correct,” added Fischer. “If you look at what’s been happening to the economy since November 8 (election) ... and to the asset markets, and if you take into account the operation of what people of my age call ‘animal spirits’ ... you will realise that there has been a substantial wealth effect in this economy.”
The Fed’s employment goal has largely been met, Yellen said, and inflation is perking up.
Inflation data on Wednesday showed consumer prices in January posted their biggest monthly gain in four years and left the 12-month increase in prices at 1.9 per cent, just below the Fed’s 2 per cent target. The next monthly jobs report is scheduled for March 10.
The Fed raised interest rates for only the second time in a decade at its policy meeting last December, but has forecast three rate increases this year on the back of the low unemployment rate - currently 4.8 per cent - and rising inflation.
Fed policymakers have also been buoyed in their economic outlook by a surge in business and consumer confidence since Republican Donald Trump was elected US president. Since the November 8 election, the S&P 500 has risen 11 per cent.
Yellen did not directly address the likely impact of the Trump administration’s economic policies in her remarks.