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The head of the Federal Reserve told about the probability growth of the rate increase

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The head of the Federal Reserve told about the probability growth of the rate increase

The head of the Federal Reserve told about the probability growth of the rate increase
August 29
14:30 2016

The chance that the Fed rate will be increased has risen in recent months due to the fact that labor market indicators have improved as well as on the background of the moderate economic growth expectations, said the head of the Federal Reserve Janet Yellen on Friday.

Janet Yellen did not specify when exactly the US Central Bank could increase the rate, but her words indicated the possibility of such a move later that year. The Fed meetings, which will focus on the monetary policy, will take place in September, November and December.

In her speech at the conference of representatives of the world’s central banks in Jackson Hole, Wyoming, the head of the Federal Reserve said that the US economy was “close to the statutory targets of the maximum employment and price stability.”

“Due to the steady strong performance of the labor market and our forecasts of the economic activity and inflation, I believe that the probability of the growth of the federal funds rate has increased in recent months,” – said the head of the Federal Reserve during the speech.

Moreover, Janet Yellen claims that the Central Bank still believes that the rate increase should not be harsh.

In December the Fed raised the rates for the first time for the period of nearly 10 years. But during 2016 it has refrained from a new increase due to the global economic slowdown, volatility of the financial market and generally moderate inflation data in the USA.

FedWatch data regarding CME Group suggests that investors are now predicting the probability of the 18% rate increase at the Fed meeting in September, and in December the 53% increase is being expected.

Opinions of the Federal Reserve officials strongly disagree on the question whether to increase rates in the near future, or if a more cautious approach is needed. Janet Yellen does not give a clear picture what the Fed wants to see in order to raise the rate. Probably, due to this her speech is not likely to convince some investors that the tightening of the monetary policy is necessary.

On Friday the head of the Federal Reserve made a speech at the conference of the Federal Reserve System, which was devoted to the development of new monetary policy arrangements. Due to this policy the representatives of the central banks are willing to find new ways to stimulate the economies when they have already lowered their rates to nearly zero and have flooded the banks with money.

Most Yellen’s speech was devoted to the presentation how the Fed could cope with future recessions. Many experts and representatives of the Fed believe that the aging population and the extra trends will lead to the further deceleration of the US economic growth in the long term.

As the growth inhibition would mean that the US interest rates in the future also should be generally lower, some experts suggest that the Federal Reserve will have fewer opportunities to cope with recessions due to fewer opportunities for rate cuts.

Janet Yellen said that a similar opinion is “an exaggeration”, as the Fed would be able to use the purchase of bonds and the policy of the advanced indication in order to make the situation easier. In addition, the controller can explore other options, considering the extension of a number of assets which it may acquire as well as the increase of the inflation target or targeting of the nominal GDP, said the head of the Federal Reserve.

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2 Comments

  1. Svoboda
    Svoboda August 29, 15:23

    In recent months, representatives of the US Federal Reserve have given contradictory statements about the prospects for the monetary policy, so the state of the market is far from satisfactory.

    Reply to this comment
  2. Martin
    Martin August 29, 18:31

    According to some experts, the problem for the market is that Janet Yellen is not ready to take responsibility and speak on behalf of the Fed, which leads to the appearance of conflicting reports inside the US Central Bank.

    Reply to this comment

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