Yellen Says Interest Rate Hike Could Come ‘Relatively Soon’
Federal Reserve Chair Janet Yellen signaled the U.S. central bank is close to lifting interest rates as the economy continues to create jobs at a healthy clip and inflation inches higher.
A rate hike “could well become appropriate relatively soon if incoming data provide some further evidence of continued progress toward the committee’s objectives,” Yellen said in the text of testimony she is scheduled to deliver Thursday in Washington before Congress’s Joint Economic Committee.
Yellen, who made no mention of the prospective policies of the incoming administration of President-elect Donald Trump, reiterated the expectation of Fed officials that future rate increases will be “gradual.” Bond prices have fallen and stocks have risen as investors anticipate that Trump’s proposals to cut taxes and boost infrastructure and defense spending will lead to faster inflation and stronger growth.
“Yellen’s testimony ignored the very real possibility of substantial fiscal stimulus next year,” Ian Shepherdson, chief economist at Pantheon Macroeconomics Ltd., said in a note. She “does not want the Fed to become even more of a political punch bag than it is already.”
Yellen’s remarks will serve to cement expectations, barring a significant negative shock, for an increase in interest rates when the Federal Open Market Committee gathers in Washington Dec. 13-14. Pricing in federal funds futures contracts already imply a greater than 95 percent chance of a quarter-point hike.
U.S. inflation, labor market data bolster Fed December rate hike
U.S. consumer prices recorded their biggest increase in six months in October on rising gasoline costs and rents, suggesting a pickup in inflation that potentially clears the way for the Federal Reserve to raise interest rates in December.
Prospects for a rate hike next month also got a boost from other data on Thursday showing first-time applications for unemployment benefits tumbling to a 43-year low last week and housing starts surging to a nine-year high in October.
The Labor Department said its Consumer Price Index increased 0.4 percent last month after rising 0.3 percent in September. In the 12 months through October, the CPI advanced 1.6 percent, the biggest year-on-year increase since October 2014. The CPI increased 1.5 percent in the year to September.
Underlying inflation continued to slow last month as healthcare costs moderated after recent hefty gains. But with rents pushing higher, that trend is unlikely to be sustained.
The so-called core CPI, which strips out food and energy costs, climbed 0.1 percent last month after a similar gain in September. That slowed the year-on-year increase in the core CPI to 2.1 percent from a 2.2 percent rise in September.
The Fed has a 2 percent inflation target and tracks an inflation measure which is currently at 1.7 percent.
In another report, the Labor Department said initial claims for state unemployment benefits dropped 19,000 to a seasonally adjusted 235,000 for the week ended Nov. 12, the lowest level since November 1973.
Claims have now been below 300,000, a threshold associated with a healthy labor market, for 89 straight weeks. That is the longest run since 1970, when the labor market was much smaller.
Oil prices fall as strong dollar wipes out OPEC cut optimism
Oil prices fell in early trading on Friday as the strengthening U.S. dollar snuffed out rekindled hopes that OPEC might agree production cuts.
U.S. benchmark West Texas Intermediate (WTI) crude futures CLc1 were down 53 cents from their last settlement, or 1.17 percent, at $44.89 a barrel at 0107 GMT. International Brent LCOc1 crude futures were down 46 cents, or 0.99 percent, at 46.03 a barrel.
A stronger U.S. dollar makes oil, which is priced in dollars, more expensive to buyers in other currencies.
Reference: Reuters, Bloomberg
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