Coverage: Yellen hints at rate hike

In a speech Wednesday, Federal Reserve Chairwoman Janet Yellen reminded everyone that not only are rate hikes still on the table, but they might be coming this month.

And with the Fed’s next policy meeting just weeks away, Fed watchers everywhere can continue to ask — will they or won’t they?

Jon Hilsenrath and David Harrison of The Wall Street Journal broke down Yellen’s comments:

Federal Reserve Chairwoman  Janet Yellen signaled she’s ready to raise short-term interest rates this month barring a surprise that shakes her confidence in the economy.

She also suggested she sees dissension within her ranks, which could complicate her moves toward ending seven years of near-zero rates.

“I don’t need unanimity. I think we have to tolerate some dissent,” Ms. Yellen said Wednesday, in answer to a question after delivering a speech on the economic outlook. “I wouldn’t try to stifle dissents, and I would even expect some at critical junctures.”

In addition to some regional Fed bank presidents, two Washington-based Fed governors have expressed hesitance about raising rates, though the consensus appears to be moving against them.

“Absent information that drastically changes the economic picture and outlook, I feel the case for liftoff is compelling,” Atlanta Fed President Dennis Lockhart said in a speech in Fort Lauderdale, Fla., on Wednesday.

The Fed, which holds its next policy meeting Dec. 15-16, has said it would raise its benchmark federal-funds rate from near zero after it saw further improvement in the job market and became reasonably confident inflation will rise toward its 2% target.

Binyamin Appelbaum of The New York Times explained why Yellen and her colleagues feel comfortable in increasing rates:

The remarks by Ms. Yellen, before the Economic Club of Washington, and by other Fed officials in separate appearances on Wednesday, suggested that Fed officials had concluded that the economy was strong enough to keep growing with less support from the central bank.

The Fed has held short-term rates near zero for seven years, seeking to stimulate the economy by pushing lenders to take larger risks and encouraging businesses and consumers to borrow. When the Fed begins to raise interest rates, it will reduce those incentives.

The Fed will get one more big piece of economic data before its December meeting. The government on Friday will release a preliminary estimate of November job growth. Absent an unexpected labor market collapse, investors and analysts expect the Fed to move.

“Short of saying ‘We’re going to hike rates in two weeks’ time,’ ” Ms. Yellen’s remarks “could hardly have been clearer,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Ms. Yellen offered an upbeat assessment of economic conditions, although she emphasized that the recovery from the recession remained incomplete. She said labor markets had improved substantially, and she noted a “welcome pickup” in wage growth.

“The economy has come a long way toward the F.O.M.C.’s objectives of maximum employment and price stability,” she said, referring to the Federal Open Market Committee, the Fed’s policy-making group.

Marc Jones of Reuters detailed how Yellen’s comments caused international markets to fluctuate:

Investors were hoping for another bit of Mario Draghi magic on Thursday, after risk assets were left bruised by comments from the head of the Federal Reserve that she was “looking forward” to hiking U.S. rates.

European stocks .FTEU3 were up 0.7 percent near 3-month highs and the euro EUR= was at a 7-1/2-year low, with Draghi expected to expand the European Central Bank’s money-printing program later and hike the cost for banks that hoard cash.

It followed a fresh spurt by the dollar .DXY overnight that had sent gold XAU= sliding to a new 5-1/2-year low and other commodity and emerging markets .MSCIEF tumbling back again.

Those moves were triggered by Federal Reserve chief Janet Yellen when she said on Wednesday that raising U.S. rates, something the Fed is expected to do for the first time in nearly a decade on Dec. 16, would be proof of the economy’s recovery.

“When the Committee begins to normalize the stance of policy, doing so will be a testament … to how far our economy has come,” she said, referring to the Fed’s policy-setting committee. “In that sense, it is a day that I expect we all are looking forward to.”

It left the focus firmly on the ECB’s moves later and traders wondering whether whatever comes out of Frankfurt will be able to offset the impact of higher Fed interest rates, which tend to drive borrowing costs globally.

“Draghi is going to have to keep doing what he can,” said Didier Saint-Georges, managing director of fund manager Carmignac.