Arab Today, arab today fed policy meeting is yellen turning bullish
Last Updated : GMT 03:35:00
Arab Today, arab today
Arab Today, arab today

Fed policy meeting, is Yellen turning bullish

Arab Today, arab today

Arab Today, arab today Fed policy meeting, is Yellen turning bullish

Janet Yellen
Washington - AFP

Bullishness is not a word much associated with Janet Yellen since she became Federal Reserve chair 18 months ago, but that could change with the Fed's next policy meeting.

With a global focus on when the US central bank will begin raising interest rates after nearly seven years locked at zero percent, analysts will be looking for a shift in how the Yellen-led Federal Open Market Committee on Wednesday describes the US economy.

No decision to raise rates is expected in the end-July FOMC meeting Tuesday and Wednesday. But the language of the policy statement could point to a date, which could be as early as September.

Long seen as the key voice of caution over tightening monetary policy, the 68-year-old economist in recent weeks has sounded more confident in the US economy, even as she stated publicly the risks that could challenge growth.

In two separate statements this month, Yellen triggered surprise by sticking firmly to the view that the FOMC will decide on a rate rise before the end of the year.

To many analysts, spotty US economic performance data -- strong hiring but weaknesses in building, consumer spending and manufacturing -- combined with generally sluggish global economic activity justified holding off on the first rate increase in nine years.

- Roots of growth -

Some say the Fed should wait until early 2016 to be sure the roots of US growth reach deep.

And indeed, in a speech on July 10 and then a policy statement to Congress on July 15, Yellen acknowledged that the weaknesses that have nagged at the FOMC for more than two years are still there.
Even as the jobless rate has fallen, to 5.3 percent in July, the labor force participation rate is still extremely low at 62.6 percent; the level of part-time employment is high at 6.5 million people, two million more than before the crisis; and wage growth has remained stubbornly slow.

"Too many people are not searching for a job but would likely do so if the labor market was stronger," Yellen said.

"And, although there are tentative signs that wage growth has picked up, it continues to be relatively subdued, consistent with other indications of slack."

Even so, she said, prospects are for more improvement in the second half of the year. The economy "also might snap back more quickly" than generally expected, she allowed.

"Economic growth abroad could pick up more quickly than observers generally anticipate, providing additional support for US activity.

"If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy," she concluded.

Amid constant market volatility over the question, Yellen has repeatedly stressed that the first rate hike is less important than how the Fed implements subsequent increases, which at this point are expected to be slow and small.

Nevertheless, it is the first step that analysts are focused on.

Waiting until September will give the FOMC another two months' data on employment -- July and August -- and other issues, including inflation, needed to make a rate decision. Most analysts expect continued improvement all around.

Yet any signal given on Wednesday is likely to be less than absolute.

"With the ongoing possibility of further Greece or China induced market volatility, the FOMC likely wants to avoid a situation in which markets become too certain of a September hike," said Barclays in a client note.

 

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