Janet Yellen signals US interest rates may rise sooner than anticipated


Economics Editor

Janet Yellen, head of the US Federal Reserve, yesterday moderated her dovish stance on the amount of slack in the US economy, signalling the possibility that interest rates could rise sooner than previously thought.

Speaking at the annual Jackson Hole conference in Wyoming, Ms Yellen noted that labour market conditions in the US economy had improved “more rapidly” than the rate-setting Federal Open Market Committee expected.

“If progress in the labour market continues to be more rapid than anticipated by the committee or if inflation moves up more rapidly than anticipated… then increases in the Federal fund rate target could come sooner than the committee currently expects and could be more rapid thereafter,” she said.

Financial markets are currently expecting the first US rate rise to come in the middle of next year. In response to her speech, the dollar hit its highest level against the euro since last September. “The market seems to perceive this indecision to be a subtle shift away from the ultra-dovish stance that Yellen has taken in the past” said Kathleen Brooks of Forex.com.

However, Ms Yellen – who was giving her first speech to the international conference of central bankers since being appointed chair of the Federal Reserve in January – added that if the American economy disappoints, the path of rate rises will be more accommodating.

“Under-utilisation of labour resources still remains significant,” she argued, pointing to the large number of Americans who still say they are working part time but want longer hours. “The committee will be closely monitoring information on the labour market and inflation in determining the appropriate stance of monetary policy,” she added.

The US unemployment rate has fallen rapidly over the past five years, declining from a peak of 10 per cent in 2009 to 6.2 per cent in July. Net job creation has also improved, with non-farm payrolls rising by 230,000 a month in 2014, up from 190,000 a month in 2012 and 2013.

Analysts were divided over the meaning of Ms Yellen’s speech. “Put simply, she continues to believe there is more slack in the labour market than the unemployment rate suggests,” said Paul Dales of Capital Economics.

But Rob Carnell of ING said Ms Yellen was trying to give a balanced message. “This was classic economist ‘on the one hand’ and ‘on the other’ and gives nothing away. The key theme might be summarised as uncertainty. The Fed typically likes to play safe with monetary policy when it is unsure.”

One Federal Reserve official said yesterday that, in his view, little slack remains in the labour market. The president of the St Louis Federal Reserve, James Bullard, told CNBC he had argued at a Fed policy meeting in July that it should not describe under-utilisation of labour market resources as “significant” and that there was a risk the it could raise rates too slowly over the next few years. “If we go very slow, very gradual, are we going to get another housing bubble and a big disaster on our hands?” he asked.

The median estimate of Open Market Committee policymakers released after their June meeting shows they project the Federal funds rate to rise to 1.13 percent at the end of 2015 and to 2.5 percent a year later.

Start your day with The Independent, sign up for daily news emails
Seth Rollins cashes in his Money in the Bank contract to win the WWE World Heavyweight Championship
WWERollins win the WWE World Heavyweight title in one of the greatest WrestleMania's ever seen
Arts and Entertainment
Louis Theroux: By Reason of Insanity takes him behind the bars again
tvBy Reason of Insanity, TV review
Arts and Entertainment
Cassetteboy's latest video is called Emperor's New Clothes rap
videoThe political parody genius duo strike again with new video
Arts and Entertainment
tvPoldark, TV review
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor