Yellen: Case for Rate Hike "Strengthened"; Market: "Meh"

Yellen: Case for Rate Hike

Yellen: Case for Rate Hike "Strengthened"; Market: "Meh"

US Federal Reserve chairperson Janet Yellen on Friday made the case for raising central bank interest rates on the basis of trends in recent months showing improvements in the labour market and greater expectations of moderate economic growth. Although the bank signaled more rate hikes this year, there has been none so far, as it pointed to risks in the US economy. Still, second-quarter GDP growth was revised down a tick to 1.1% on Friday, giving the Fed leeway to hold off on hiking rates prior to the November election.

Yellen told a gathering of central bankers from around the world in Jackson Hole, Wyoming, the US economy was nearing the central bank's goals of maximum employment and price stability but that future hikes should be "gradual".

The Commerce Department released a report before the start of trading showing a slight downward revision to the pace of US economic growth in the second quarter.

However, consumer spending, which makes up more than two-thirds of economic activity, was revised up to show it increased at the fastest rate since the fourth quarter of 2014.

Yellen defended the Fed's position, though she did acknowledge some limitations.

Yellen's words returned a measure of clarity on the intentions of U.S. monetary policymakers, who have been publicly at odds in recent months over the need to raise rates in the near-term. The Fed chair didn't discuss the specific timing of a rate move in her first public comments since June.

The path of rate hikes next year is the big issue for investors.

Bond prices fell. The yield on the 10-year Treasury note rose to 1.58 percent.

Yellen noted that Fed officials have a wide range of views on where rates will likely be in the coming years. The dollar was last up 0.75 percent at $95.492 versus a basket of major currencies.

Economists have also said the USA elections also add a measure of uncertainty to global economic outlook.

Perhaps helping the turn of sentiment were comments on CNBC from Fed Vice Chair Stanley Fischer suggesting the central bank could raise rates twice before year's end, instead of once in December as many investors had been expecting. Lee Ferridge, head of multi-asset strategy at State Street Global Markets North America, was disappointed that after "recent hints of an ongoing policy rethink at the FOMC, Yellen's Jackson Hole speech did not break much new ground".

The U.S. unit also drifted lower against the South Korean won, Singapore dollar, the Thai baht and Philippine peso.

Yellen added that the Fed continues to believe that future rate increases will remain "gradual".

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