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Fed rate hike likely soon after Yellen comments
Federal Reserve Chair Janet Yellen said on Friday during a panel discussion at the Radcliffe Institute for Advanced Study at Harvard University, that it is appropriate for the Fed to gradually and cautiously increase the short term interest rate over time. She signaled that this could be likely in the coming months.
The US dollar was given quite a boost after her upbeat comments. By early Monday trading, USDJPY rose to 111.18 yen, the highest since April 28.
Yellen’s comments raised market expectations for a move as soon as the next FOMC policy meeting June 14-15 or at its following meetings in July or September if officials prefer to wait for more economic data.
However, Ms Yellen emphasized the Fed is likely to raise interest rates “gradually and cautiously” because raising them too quickly could trigger a downturn to which the Fed may have limited tools to respond.
But after a couple of weak quarters, growth in the US looks to be picking up. The growth picture has brightened from early this year, when the US economy followed its familiar post-recession pattern of a first-quarter stumble. GDP expanded at a 0.8% seasonally adjusted annual rate in the first three months of 2016, the Commerce Department said in updated figures out Friday. That was up from an initial estimate of 0.5% growth but still represented a deceleration from the fourth quarter’s 1.4% growth rate.
Gauges of consumer confidence and spending, housing-market activity and industrial production all gained steam during the spring months. Forecasting firm Macroeconomic Advisers on Friday projected growth in gross domestic product, a broad measure of the goods and services produced across the economy, would accelerate to a 2.5% annual rate in the second quarter from the first quarter’s 0.8% pace.
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