Janet Yellen’s Remarks Anything But “Dovish”
Monday, US Federal Reserve Chairwoman Janet Yellen said that interest rate hikes are likely on the way because “positive economic forces outweigh the negative” for the United States now that risks from earlier this year have diminished.
In Monday’s public comment from any US central banker before a Key policy meeting next week, Ms. Yellen said last month’s jobs report was “disappointing” and bears watching, though she warned against attaching too much significance to it on its own.
In her address, she was careful not to give timelines on raising interest rates, in contrast to a speech on 27 May when she said “probably in coming months such a move would be appropriate.”
Monday she stressed that surprises may emerge that could change her expectations.
Ms. Yellen listed 4 Key risks to the US economy, as follows:
- slower demand
- slower productivity
- overseas risks
Notably, she downplayed all of them.
“If incoming data are consistent with labor market conditions strengthening and inflation making progress toward our 2 percent objective, as I expect, further gradual increases in the federal funds rate are likely to be appropriate,” Ms. Yellen said at the World Affairs Council of Philadelphia.
Prospects of another hike this month were all but killed by a report last week showing only 38,000 jobs were created in May, muting recent upbeat data on consumer spending, housing and overall US growth the only 2 drivers in the US economy..
Although the report was “concerning, let me emphasize that one should never attach too much significance to any single monthly report,” Ms. Yellen said. “Other timely indicators from the labor market have been more positive.”
Amid the “countervailing forces,” she said, “I see good reasons to expect that the positive forces supporting employment growth and higher inflation will continue to outweigh the negative ones. As a result, I expect the economic expansion to continue, with the labor market improving further and GDP growing moderately.”
Traders in futures markets are now betting on a rate hike in November or December.
While Ms. Yellen did not repeat her recent remarks when she said rate hikes would probably be appropriate in coming months, she said she remained optimistic inflation would rise to the Fed’s 2% goal because Crude Oil prices had reversed their downward path and the USD had steadied after a long period of gains.
These remarks are anything but Dovish.