Federal Reserve Chair Janet Yellen said that additional gradual interest-rate increases will be appropriate but was silent on their precise timing, an omission viewed as a signal that a June move was off the table.
“I continue to think that the federal funds rate will probably need to rise gradually over time to ensure price stability and maximum sustainable employment in the longer run,” Yellen said Monday during a speech in Philadelphia.
Her comments were less specific than in her previous remarks in describing when she thought the Fed should raise rates again. On May 27 at Harvard University, she said an increase would likely be appropriate in “coming months,” a phrase she didn’t repeat on Monday. Since then, the Labor Department reported U.S. employers in May added the fewest number of new jobs in almost six years, causing expectations for a rate increase to plunge.
“She did not address the timing of the Fed’s next gradual move which suggests to us that she is in no hurry,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd, arguing that her comments on the payroll report “largely rules out a move in rates next week. July is not a strong bet either.”
The employment numbers were “disappointing,” Yellen said, while also pointing to one of the few encouraging elements of the report — the increase in average hourly earnings.
The dollar was little changed while U.S. stocks pared gains and Treasuries trimmed losses as Yellen discussed signs of weakness in the economy in the last scheduled public comments from a policy maker before Fed officials enter their traditional self-imposed quiet period heading into the June 14-15 meeting of the Federal Open Market Committee.
“Yellen’s speech is clearly aimed at calming nerves, acknowledging the weakness of the May payroll report but building a strong case for believing it will prove temporary,” Ian Shepherdson, chief economist at Pantheon Macroeconomics Ltd., wrote in a note to clients.
The Fed chair said she is watching “four areas of uncertainty” in the economic outlook, including weak investment trends and last week’s employment report, which raise questions over the U.S. economy’s resilience in a time of “fairly considerable global bumpiness.”
Global risks are also a concern, Yellen said, citing China’s growth rate and the U.K. referendum this month on membership in the European Union. There is uncertainty over whether rates of U.S. productivity, or output per hour, will pick up, and over how quickly inflation will move back to the central bank’s 2% target, she said.
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