Financial markets have their attention firmly focused on Federal Reserve chief Janet Yellen, who is due to speak on Friday at the annual central bankers gathering in Jackson Hole, Wyoming.
Point of view
I do think it is time to move that rateKansas City Fed President
The dollar is set to jump or fall depending on what she will say about interest rates.
The Fed is widely expected to keep the cost of borrowing unchanged at its September policy meeting, but Yellen’s speech will be picked apart as investors around the world hunt for clues.
Specifically whether she and the other policymakers think the US economy is now resilient enough in terms of employment and inflation to cope with a rate increase by the end of the year.
On that score – unemployment claims unexpectedly fell last week, suggesting the US jobs market has continued to gain momentum. New orders for manufactured capital goods also rose for a second straight month in July, offering some signs of a recovery in business spending.
“This kind of data are consistent with what the Fed is looking for in terms of the labour market and economic growth. If we get more data like this, that will suggest we are likely to see an interest rate increase, most likely in December,” said Gus Faucher, senior economist at PNC Financial Services Group.
A seeming desire to hike rates has emerged recently from some key policymakers.
Kansas City Fed President and voting member, Esther George told CNBC on Thursday: “I do think it is time to move that rate.”
She based that on progress in employment and inflation. She also said rates should be increased gradually.
A similar message came from Dallas Fed President Robert Kaplan, who is not currently a voting member of the central bank’s policy committee.
Also on Thursday, he said on CNBC: “The case is strengthening” for a rate hike. “And you should conclude from that in the not too distant future … I think we’re moving toward being able to take another step,” he said.
Kaplan added that such a move would depend on continued economic progress.
Watching Yellen’s speech particularly keenly will be Japan’s central bank governor Haruhiko Kuroda.
When US interest rates go up the dollar increases in value against the yen which helps Japan’s export-dependent economy.
Yellen herself knows that timing is everything after the Fed got into trouble raising rates a little too early last December – so the feeling in the financial world is she will leave her options open.