Yellen Hints At September Rate Hike

Economy, Featured Jamie Simon
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In an August 26, 2016, speech to bankers and economists in Jackson Hole, Wyoming, Federal Reserve Chair Janet Yellen explained that in her opinion her evaluation of economic indicators indicates that a rate increase is both necessary and imminent. There are two meetings of the Federal Reserve between Yellen’s speech and the Presidential election. The first opportunity to raise rates will be on September 21, 2106.

Yellen based her comments on strong labor market. .Hiring was much larger in June and July than expected. An unemployment rate of 4.8 percent is lower than the limit that the Federal Reserve has previously established as being a marker of the need for a rate increase. Yellen plans to wait for August employment data before reaching a final decision.

Gross domestic product figures for 2016 are one-tenth of a percent below the projected rate of 1.2 percent. The lower rate is attributed to declining manufacturing productivity. The bulk of the increase in GDP came from consumer spending indicating a higher level of disposable income for the majority of U. S. citizens.

Banks have been advocating for a rate increase. Yellen acknowledged the concern that banks have. Banks that are primarily involved with real estate financing are rapidly reaching the point where their interest producing accounts cannot keep up with the interest they pay on deposits.

Yellen also acknowledged that the presently expected inflation rate of two percent has gone past the previously defined limits that would require a rate adjustment to maintain growth without inflation.

Yellen commented that the tools that the Federal Reserve has used for the last seven years to manage the U. S. economy through recession to moderate prosperity may need to be replaced with more forward looking concepts. The Federal Reserve has not changed rates since December of 2015 when rates rose to between 0.25 and 0.5. Any rate increase is expected to be modest.