Janet Yellen’s Lecture Revives Federal Reserve Rate Hike Speculation

Talking Points:

• Fed Chair Janet Yellen expects to raise the federal funds rate this year
• Yellen expects downward pressure on inflation to be transitory
• The US Dollar strengthened in response to Yellen’s comments

Janet Yellen’s lecture in Amherst appeared to lean more towards the hawkish side of the spectrum in regards to monetary policy. In her speech, the Chairwoman stated that the majority of FOMC members see an increase in the benchmark lending rate later this year as the base case. According to Yellen, a change in belief on policy – to a further delay in hikingrates – would come from a negative surprise in economic data. She projects full employment to be reached in the short-term and factors putting downward pressure on inflation to be transitory. Yellen’s comments contributed to the afterhours strengthening of the greenback vs the other major currencies.

Highlights from Federal Reserve Chair Janet Yellen’s September 24 Amherst Lecture:

• Most on FOMC, including myself, expect a 2015 liftoff
• FOMC views may change if economy “surprises us”
• Sees gradual pace of tightening thereafter

• Economy is not far away from full employment.
• Factors weighing on inflation are transitory
• 2016 inflation likely 1.5% or more barring dollar rise, oil dip

• Delaying hike would lead to abrupt tightening
• Abrupt tightening may disrupt financial markets and lead to a recession
• Continuing to delay a hike will lead to excessive leverage and inappropriate risk-taking

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