The Federal Reserve is aiming to raise interest rates by as early as next month, according to the head of the U.S. central bank and other policymakers on Friday.
According to the Fed Chairman Janet Yellen in a global monetary policy conference, the case for the rate increase grew stronger after the second quarter. Vice Chairman Stanley Fischer said that the September policy meeting could prompt the move if the economy is doing well.
On Friday, U.S. government data reflected sluggish growth in the economy for the second quarter with new jobs being created and economic growth continuing at a moderate pace.
“I believe the case for an increase in the federal funds rate has strengthened in recent months,” Yellen said at the Fed’s annual monetary policy conference in Jackson Hole, Wyoming.
According to Yellen, the Fed is close to its goals of maximum employment and stable prices. The country is also experiencing “solid” consumer spending, but with weak business investments and a strong U.S. dollar weakening exports.
The Fed has not given guidance on the central bank’s signals to increase rates. Investors expect that the odds are even on whether or not the Fed will increase rates at the Fed’s December policy meeting.
“She’s just kept the door open for a hike sooner rather than later,” said Societe Generale interest rate strategist Subadra Rajappa.
In an interview after Yellen’s speech, Fischer said that if data continues to point to a good economic outlook, Yellen’s comments were a sign that policymakers were going to increase interest rates. Further, in a question about a possible rate hike and policy tightening in September, he said, “I think what the Chair said today was consistent with answering yes to both of your questions.”
The comments from Fed officials increased the dollar against a basket of other currencies. Stock prices in the U.S. swung and ended generally lower as U.S. Treasury prices were also weaker.
The market continued to be skeptical about the Fed rate hike forecast because of the perceived gap between its signals and its delivery in the past.
For the first time in almost 10 years, the Fed increased rates and expected four more increases in 2016, only to decrease the move to two increases due to the slowdown in global growth, volatility in financial markets and making very slow progress in its goal to reach 2 percent inflation rate.
The Fed itself is split on whether to take a more cautious approach or to raise rates soon.
In an interview with Bloomberg, Fed Governor Jerome Powell said on Friday that the central bank could be patient and that the inflation rate should reach their targets before increasing their rates.
“When we see progress toward 2 percent inflation and a tightening in the labor market and growth strong enough to support all that, we should take the opportunity,” Powell said.
Yellen noted that current forecasts on rates by the end of the 2017 will have a 70 percent chance of being between 0 and 0.37 percent.