Global financial markets had a stormy week – Greece, China, Puerto Rico, yowza! But Federal Reserve Chair Janet Yellen isn’t fazed. Today, she sent a strong signal that the central bank remains on track to raise interest rates later this year.
“I expect it will be appropriate at some point later this year to take the first step to raise the federal funds rate,” Yellen told business and political leaders in Cleveland. OK, that might not sound like a strong signal. Trust us, in Fed code it is.
But there’s always a “but” at the Fed. Here was Yellen’s today: “I want to emphasize that the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step.”
Sluggish wage growth and the huge number of Americans dropping out of the workforce are of particular concern, she said. On the other hand, job openings hit a record high of 5.36 million in May, a sign of business confidence. So is the job market healthy or not?
“By some metrics we’ve gone beyond maximum sustainable employment, by others we haven’t,” Yellen said. Even her fellow Fed policymakers “differ in their judgements on where we stand.”
OK, look. The Fed isn’t totally sold on the labor recovery. Greece, China and Puerto Rico aren’t out of the woods. And there’s a chance we’ll get disappointing news on the U.S. economy before central bank policymakers meet in September. Very little is written in stone.
But today’s speech was one of the clearest signals the Fed has sent on a rate hike, and it comes despite the commotion overseas. The central bank doesn’t set the cost of home loans, but it’s a key player in the larger financial system that does. Signs still point to rising mortgage rates later this year.
