In a much-anticipated speech Friday at the central bank's annual Jackson Hole summit, Fed Chair Janet Yellen voiced optimism about the economy and an expectation that interest rate hikes are ahead.
Speaking as the market wonders when the Fed will resume a policy tightening that began in December, Yellen issued some cautionary tones, but pointed to more increases on the horizon.
The Federal Open Market Committee "continues to anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives," Yellen said in prepared remarks.
Federal Reserve Vice Chairman Stanley Fischer told CNBC on Friday the decision on whether to hike interest rates should be looking forward, not backward — and the next jobs report will figure into the process.
The U.S. economy has strengthened, with strong jobs data in the last three months, Fischer told "Squawk Alley" in an interview a week before the government releases the August employment report.
"That will probably weigh in our decision, along with other data that may come in," he said.
"The problem with this economy is there is so many numbers each day," Fischer said. "You have to try and figure out what is the main thrust of what's going on in the economy."
Cleveland Federal Reserve President Loretta Mester, a central bank policy panel voting member this year, said Friday she expects to some signs of strengthening in the U.S. economy in the second half of 2016.
"I think the economy is on a good track," she said in an interview on CNBC's "Squawk Box." "I think the employment numbers show that, I think the inflation's numbers are coming up slowly, they're below our target still but they're moving in the right direction."
Mester said she thinks 3 percent growth for the second half of the year is "not unreasonable," and she believes inflation will move gradually back to 2 percent.
St. Louis Federal Reserve Bank President James Bullard, a voting member this year on the central bank's policy-setting panel, told CNBC on Friday that the September Fed meeting might be a good time to raise interest rates.
Bullard has said he favors a single hike in the federal funds overnight lending rate to 0.63 percent and a hold for about 2 ½ years. The current rate, bumped up for the first time in more than nine years in December, ranges from 0.25 percent to 0.50 percent.
Atlanta Fed President Dennis Lockhart said Friday the Fed could hike interest rates at least once and maybe twice before year-end, even in a gradual and cautious approach to policy.
"I can see two rate hikes as possible when I look at the calendar. We have three more [policymaking] meetings this year, so that's possible," Lockhart said on Bloomberg TV from Jackson Hole, Wyoming.
"In our view, if the employment report continues to indicate an improving labor market, the FOMC may well raise rates at the September meeting," wrote Goldman Sachs economists. "As a result, we have increased our subjective odds of a hike at next month's meeting to 40 percent from 30 percent previously."
Fed funds futures as of Friday indicated a 42 percent chance that the Fed will hike as early as next month, up from 22 percent a week earlier, and investors now turn their attention to U.S. payrolls data later this week for further clues. Higher rates tend to hurt bullion while boosting the U.S. currency, which rose as much as 0.2 percent on Monday.
Oil prices were largely unchanged on Friday in a volatile session, as traders reacted to comments from Fed Chair Janet Yellen and reports of missile activity in Saudi Arabia.
The market was taking its cues from the movement in the dollar, which has been choppy following Yellen's remarks.
At one point, crude benchmarks were up as much as 2 percent before drifting lower. Brent crude futures settled at $49.92, up 25 cents or 0.5 percent. U.S. crude ended the session 31 cents higher at $47.64.
Prices gathered support briefly from Baker Hughes data showing that U.S. oil drillers kept rig count steady after eight weeks of additions.
Reference: Reuters, CNBC, Bloomberg
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