Yellen signals Fed probably will raise rates in March
Federal Reserve chair Janet Yellen said a March rate hike would be “appropriate” if the economy continues to evolve as expected, adding strength to recent speculation that the central bank will raise its benchmark interest rate at its upcoming March meeting.
In remarks made to the Executives Club of Chicago on Friday, Yellen said a stronger job market and rising inflation suggest the Fed should stick to its plan of raising interest rates three times this year.
“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’s prepared remarks read.
Elsewhere in the speech, she indicated that the economy was meeting the Fed’s expectations. “The economy has essentially met the employment portion of our mandate and inflation is moving closer to our 2 percent objective,” she said.
Yellen’s remarks follow a chorus of statements from other high-profile members of the Federal Reserve that have added to investors’ expectations of a rate increase at the Fed’s next meeting, on March 14-15.
Federal Reserve Board governors Jerome Powell and Lael Brainard, New York Fed President William Dudley, San Francisco Federal Reserve Bank President John Williams and Dallas Federal Reserve Bank President Robert Kaplan have all indicated a rate hike is on the table.
“I think the case for a rate increase in March has come together, and I think it’s on the table for discussion,” Powell said in an interview on CNBC Thursday.
Dudley remarked the case for a rate hike had “become a lot more compelling,” while Williams said he didn’t “see any need to delay.” Brainard said that a rate increase would be “appropriate soon” if the economy continues to progress. Brainard and Dudley are thought to be among the Fed’s more dovish members.
The Fed has long said it expects three rate increases this year. But until as recently as this week, Wall Street saw a rate hike as far likelier in June.
Futures markets have shifted rapidly in recent weeks, with the majority of investors now predicting a rate hike in March rather than in May. As of Friday mid-day, the odds of a March rate hike were above 75 percent, according to CME Group’s FedWatch program, up from only 25 percent at the beginning of February.
The shift in expectations has sent Treasury yields soaring, since investors now see a prospect of higher inflation that would erode the real interest payouts of bonds. Stock markets have dipped slightly since surging to record highs on Wednesday.
In her speech, Yellen remarked on how economic growth had disappointed in 2015, due to weaker economies abroad, the lower price of oil, and the appreciation of the dollar that persuaded the Fed to proceed cautiously. Lower than anticipated growth and inflation in early 2016, as well as a international events such as the slowdown in the Chinese economy and Brexit, again encouraged the committee to move more cautiously than anticipated.
Federal Reserve Chair Janet Yellen participates in a Q&A with Executives’ Club CEO Ana Dutra, Friday, March 3, 2017, at the club’s luncheon in Chicago. (AP Photo/Charles Rex Arbogast)
Federal Reserve Chair Janet Yellen participates in a Q&A with Executives’ Club CEO Ana Dutra, Friday, March 3, 2017, at the club’s luncheon in Chicago. (AP Photo/Charles Rex Arbogast)