Tag Archives: Federal Reserve

World stocks retreat from record highs as valuations give cause for a pause

FILE PHOTO: Visitors looks at an electronic board showing the Japan's Nikkei average at the Tokyo Stock Exchange (TSE) in Tokyo, Japan, February 9, 2016. REUTERS/Issei Kato/Files

By Vikram Subhedar

LONDON (Reuters) – Global stocks paused near record highs as worries over China’s banking system provided an excuse for investors to lock in some profits. The dollar was set for its best week of the year on bets the Federal Reserve will raise U.S. interest rates in June.

A dip on Wall Street overnight on signs of weak consumer spending and waning enthusiasm over the recovery in European corporate earnings has put MSCI’s gauge of world stock markets <.MIWD00000PUS> on track for its first weekly loss in four.

The index trades at now trades at more than 16 times forward earnings, according to Thomson Reuters data, and above its long-term average of 15.6 times.

U.S. stock futures <ESc1> were down another 0.2 percent on Friday.

“We’ve had a nervous twitch about China, over this week,” said Sean Darby, chief global equity strategist at Jefferies. “We’ve had a bit more of a regulatory overhang coming through in the financial system.”

China’s banking regulator this week launched emergency risk assessments of lenders’ new business practices, sources told Reuters, as Beijing extends its crackdown on shadow banking.

With corporate earnings seasons in the U.S. and Europe drawing to a close investors, focus is likely to shift back to central banks, particularly in the United States, where inflation pressures are growing.

U.S. data on Thursday showed producer prices rebounded more than expected last month, leading to the biggest annual gain in five years.

Combined with a tightening labor market, firming inflation backs market expectations that the Federal Reserve will raise interest rates at its meeting next month. The central bank has forecast two more increases this year after raising rates a quarter of a point in March.

The stronger fundamentals in the U.S. helped offset uneasiness over political turmoil after President Donald Trump abruptly fired FBI chief James Comey.

The dollar index, which tracks the currency against a basket of six major rivals, was flat on the day at 99.622 <.DXY>, but was up 1 percent for the week.

Sterling was steady on the day at $1.2886 <GBP=> after dropping to a one-week low on Thursday following the Bank of England’s decision to keep interest rates unchanged. Policymakers indicated that rates were unlikely to rise until late 2019.

EUROPE’S SWEET SPOT

In Europe, stock markets steadied this week. Company profits are expected to grow 20 percent in the first quarter, the best corporate results in a decade, according to Morgan Stanley.

Their outperformance this year against global peers remains intact, with the benchmark’s <.STOXX> 10 percent gains outpacing the 7 percent rise on the S&P 500 <.SPX>.

Greek stocks <.ATG> snapped a their longest winning streak in two decades.

“European stocks are still in the sweet spot of basking in the removal of political risk in Europe for the time being, though it is somewhat ironic that we could see a modest decline on the week as investors take stock,” said Michael Hewson, chief markets analyst at CMC Markets.

European equity funds pulled in a record $6.1 billion in inflows in the week to May 10, according to data from EPFR, with centrist Emmanuel Macron’s win in the French presidential election seen as a trigger.

Concerns over valuations are beginning to emerge. Credit Suisse strategists cut their rating on Spain, the euro zone’s top performing market for the year, to “underperform,” saying the strong earnings and economic momentum was moderating.

At the same time, the collapse in volatility across asset classes to multi-year or record lows, is tempting more investors into making bets that markets will remain calm given the brighter outlook for global growth.

Bank of America Merrill Lynch said its high-net-worth clients cut cash and resumed buying low-volatility exchange-traded funds.

Yields for the euro zone’s weaker borrowers, such as Italy, Portugal and Spain, were all also 1 to 3 basis points lower as investors awaited announcements of the volumes for expected bond sales next week by France and Spain.

Oil prices held recent gains as traders expected OPEC-led production cuts to extend beyond the middle of this year and as U.S. crude inventories fell to their lowest levels since February.

International Brent crude futures <LCOc1> were at $50.78 per barrel. U.S. West Texas Intermediate crude futures <CLc1> were at $47.85 per barrel, both little changed on the day.

(Reporting by Vikram Subhedar, editing by Larry King)

Dollar rises after sliding on Trump remarks on currency, rates

FILE PHOTO: U.S. dollar notes are seen in this November 7, 2016 picture illustration. REUTERS/Dado Ruvic/Illustration/File Photo

By Dion Rabouin

NEW YORK (Reuters) – The U.S. dollar rose on Thursday, rebounding after a slide that investors considered overdone following remarks by President Donald Trump that the currency was getting too strong and he would prefer the Federal Reserve to keep interest rates low.

The greenback and U.S. Treasury yields took a heavy hit after Trump’s comments to the Wall Street Journal, in which he said the strength of the dollar would hurt the economy.

But after losing 0.6 percent on Wednesday – its biggest one-day fall in more than three weeks – the dollar recovered on Thursday against a basket of major currencies <=USD> that tracks its value, rising 0.3 percent.

“Clearly, I think it was oversold yesterday,” said Peter Ng, senior currency trader at Silicon Valley Bank in Santa Clara, California. “The market was very sensitive to headlines given how nervous it has become due to geopolitical risk.”

Trading was also thinner than usual because of the impending Good Friday holiday in the U.S. and Europe this week, Ng said.

Having hit a five-month low of 108.73 yen in early Asian trading, the dollar steadied at 109.20 yen. <JPY=>

“Yes, it was negative what (Trump) said…but it’s not a big surprise – it wasn’t a U-turn in his rhetoric on the exchange rate so far,” said Commerzbank currency strategist Thu Lan Nguyen in Frankfurt.

“The question is: is he able to influence monetary policy in order to get a weaker dollar? That is still an open question.”

Trump’s remarks went against a long-standing practice of both U.S. Democratic and Republican administrations of refraining from commenting on policy set by the independent Federal Reserve. It is also unusual for a president to talk about the value of the dollar, a subject usually left to the U.S. Treasury secretary.

The dollar has shed 1.7 percent against the yen so far this week, its fourth week lower against the safe-haven Japanese currency in five, as a rise in tensions in Asia and Europe prompted yen buying.

Investors are concerned about the upcoming French presidential election as well as possible U.S. military action against Syria and North Korea, and an escalation of tensions with Russia.

The euro fell 0.5 percent to $1.0619 <EUR=> after touching a one-week high in overnight trading.

The dollar was little changed against China’s offshore yuan <CNH=D3>, after falling to a six-day low on Wednesday. It had risen to a one-month high at the start of the week.

(Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Bernadette Baum)

Fed on track to raise U.S. rates twice more this year

A police officer keeps watch in front of the U.S. Federal Reserve building in Washington, DC,

NEW YORK (Reuters) – The Federal Reserve is on track to raise interest rates twice more this year after a policy tightening last week, and it could be more or less aggressive depending on inflation and fiscal policies from the Trump administration, a Fed rate-setter said on Monday.

The public comments from Chicago Fed President Charles Evans were among the first since the U.S. central bank lifted its policy rate a notch last week, as expected. It also forecast roughly two more moves in 2017 in a nod to low unemployment and some inflation pressures.

“Three is entirely possible,” Evans, speaking on Fox Business Network TV, said of hikes in 2017. “As I gain more confidence in the outlook I could support three total this year. If inflation began to pick up, that would certainly solidify (that expectation). It could be three, it could be two, it could be four if things really pick up.”

Asked about U.S. President Donald Trump’s promise to boost the economy to a 4 percent growth rate, from about 2 percent in the last few years, Evans said: “Four percent would be really an outsized number.”

While that level of growth could be reached “in any given year,” he said it was hard to imagine given the economy is already doing well, the labor market is “very strong,” and sectors like automobile sales are at all-time highs.

Evans, who is a voter on the Fed’s policy-setting committee this year and supported last week’s move, also echoed a comment from Fed Chair Janet Yellen on Wednesday that suggested the central bank could try to push inflation, now at 1.7 percent, above a 2-percent target.

“There is room to get inflation up to 2 percent and in fact going beyond 2 percent a little bit to make sure we get there, and that it’s a symmetric inflation objective, so that’s ok,” Evans said.

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)

Dollar inches higher as investors look to Fed decision this week

Arrangement of various world currencies including Chinese Yuan, US Dollar, Euro, British Pound,

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The dollar edged higher from two-week lows on Monday, recovering after Friday’s bout of profit-taking following a robust U.S. jobs report, as investors looked to this week’s Federal Reserve’s policy meeting in which it is expected to raise rates by a quarter percentage point.

“We remain bullish on the dollar, but as Friday’s events suggested, a lot of good news is already priced into the dollar at current levels,” said Shaun Osborne, chief FX strategist, at Scotiabank in Toronto.

“Yields are high enough and spreads are wide enough to keep the dollar broadly supported against its major currency peers for the moment, but additional gains will likely hinge on the messaging from the Fed at the FOMC.”

The Federal Open Market Committee will hold a two-day monetary policy meeting, which starts on Tuesday. Fed funds futures on Monday have priced in a nearly 90-percent chance the Fed will hike rates on Wednesday.

Sterling, which has been one of the worst performers against the dollar over the last two weeks, rose half a percent after the devolved Scottish government demanded the right to hold a new referendum on independence.

In late morning trading, the dollar was slightly higher  against a basket of currencies at 101.31 and was marginally up against the euro. The single European currency was last at $1.0664.

The dollar index earlier fell to a two-week low of 101.01.

Friday’s solid jobs number cemented the case for a rise in U.S. interest rates this week that will long predate any rise in European equivalents.

Britain is expected to formally lodge its request to leave the European Union, but was given another curve ball from Scottish First Minister Nicola Sturgeon’s call for a new referendum on independence.

But Sturgeon’s timeframe for the referendum, which at the earliest could happen by the end of next year when Brexit negotiations are expected to be concluded, partially eased concerns about the issue adding to more political risk over the next 12 months.

Sterling, as a result, held gains against the dollar rising 0.5 percent to $1.2229.

Against the yen, the dollar slipped 0.1 percent to 114.68 yen.

Scotiabank, in a research note, said there is speculation on the potential for changes at the Bank of Japan, including a possible shift to 10-year government bond yield target range from the current zero level. This is considered positive for the yen.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Patrick Graham in London; Editing by Nick Zieminski)

U.S. jobless claims near 44-year-low as labor market tightens

Legal firm Hogan Lovells representative Nina LeClair (2nd R) talks to U.S. military veteran applicants (L) at a hiring fair for veteran job seekers and military spouses at the Verizon Center in Washington April 9, 2014. REUTERS/Gary Cameron

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing for unemployment benefits fell to near a 44-year-low last week, pointing to further tightening of the labor market even as economic growth appears to have remained moderate in the first quarter.

The stronger labor market combined with rising inflation could push the Federal Reserve to raise interest rates this month.

Initial claims for state unemployment benefits dropped 19,000 to a seasonally adjusted 223,000 for the week ended Feb. 25, the lowest level since March 1973, the Labor Department said on Thursday. Data for the prior week was revised to show 2,000 fewer applications received than previously reported.

It was the 104th straight week that claims remained below 300,000, a threshold associated with a healthy labor market. That is the longest stretch since 1970, when the labor market was much smaller. It is now at or close to full employment, with an unemployment rate of 4.8 percent.

Economists polled by Reuters had forecast new claims for unemployment benefits dipping to 243,000 in the latest week. Financial markets are already pricing in a rate hike at the Fed’s March 14-15 policy meeting.

U.S. stock index futures rose after the data on Thursday. The U.S. dollar <.DXY> also firmed against a basket of currencies, while prices for U.S. government debt fell.

A survey from the U.S. central bank on Wednesday showed the labor market remained tight in early 2017, with some of the Fed’s districts reporting “widening” labor shortages.

The government reported on Wednesday that the personal consumption expenditures (PCE) price index jumped 1.9 percent in the 12 months through January, the biggest gain since October 2012. The PCE price index increased 1.6 percent in December.

The core PCE, the Fed’s preferred inflation measure, increased 1.7 percent, still below its 2 percent target.

TEPID GROWTH

A Labor Department analyst said there were no special factors influencing last week’s claims data. Only claims for Oklahoma were estimated.

The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 6,250 to 234,250 last week, the lowest reading since April 1973.

Data this week showed tepid growth in consumer spending in January, weak equipment and construction spending, and a wider goods trade deficit, suggesting the economy struggled to gain momentum early in the first quarter after slowing in the final three months of 2016.

The Atlanta Fed is forecasting first-quarter gross domestic product rising at a 1.8 percent annualized rate. The economy grew at a 1.9 percent pace in the fourth quarter.

Thursday’s claims report also showed the number of people still receiving benefits after an initial week of aid increased 3,000 to 2.07 million in the week ended Feb. 18. The four-week average of the so-called continuing claims edged up 750 to 2.07 million.

The continuing claims data covered the survey week for February’s unemployment rate. The four-week moving average of claims fell 21,500 between the January and February survey periods, suggesting an improvement in the jobless rate.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

U.S. short-term bond yields, dollar gain on Fed rate hike

A trader works on the floor of the New York Stock Exchange (NYSE) as a television screen displays coverage of U.S. Federal Reserve Chairman Janet Yellen shortly after the announcement that the U.S. Federal Reserve will hike interest rates, in New York, U.S.,

By Caroline Valetkevitch

NEW YORK (Reuters) – Yields on shorter-dated Treasuries hit their highest in more than five years on Wednesday while the dollar rallied after the U.S. Federal Reserve raised interest rates as expected and signaled a faster pace of hikes in 2017.

U.S. stocks fell in choppy action, but were off their lows, following the statement from the Fed, which raised the target federal funds rate 25 basis points to between 0.50 percent and 0.75 percent.

Central bank policymakers also shifted their outlook to one of slightly faster growth, with President-elect Donald Trump planning a simultaneous round of tax cuts and increased spending on infrastructure.

“It was largely as expected, but it’s pretty clear the market is taking it as a bit more aggressive or hawkish than it had thought,” said Ed Keon, portfolio manager and managing director at QMA, the multi-asset manager wholly-owned by Prudential Financial in Newark.

Yields on two-year Treasury notes rose to their highest since August 2009, while three-year yields hit their highest since May 2010 and five-year yields rose to their highest since May 2011.

U.S. two-year notes fell 4/32 in price to yield 1.247 percent.

The dollar index, which measures the greenback against a basket of six major currencies, was last up 1 percent at 102.11. The index had been trading lower while bond yields were also mostly lower before the Fed statement.

In the U.S. stock market, the Dow Jones industrial average fell 41.96 points, or 0.21 percent, to 19,869.25, the S&amp;P 500 lost 7.7 points, or 0.33895 percent, to 2,264.02 and the Nasdaq Composite dropped 0.33 points, or 0.01 percent, to 5,463.49.

MSCI’s all-country world stock index was down 1.1 percent, adding to earlier losses. The pan-European STOXX 600 share index ended down 0.5 percent.

Gold turned lower and tapped the lowest in more than 10 months following the Fed statement, while oil prices fell as the dollar gained.

Spot gold was down 0.3 percent at $1,154.62 an ounce.

Brent crude futures settled at $53.90 per barrel, down $1.82, or 3.27 percent. U.S. crude ended the session down $1.94, or 3.66 percent at $51.04 per barrel.

(Editing by Robin Pomeroy and Nick Zieminski)

Wall Street falls after Fed raises rates; energy weighs

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S.

By Rodrigo Campos

NEW YORK (Reuters) – U.S. stocks fell in volatile trading on Wednesday after the Federal Reserve raised interest rates by a quarter point and signaled hikes could come next year at a faster pace than some expected.

The Fed’s decision comes as President-elect Donald Trump, who will be sworn in next month, is seen cutting taxes and increasing spending on infrastructure. Central bank policymakers shifted their outlook to one of slightly faster growth and lower unemployment.

“The Fed ramped up the pace of rate hikes on a hope and a prayer of faster growth in 2017,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.

“Until Trump’s tax and spending plan actually gets implemented, it’s hard to justify the slight increase in the slope of rate hikes.”

The Dow Jones industrial average fell 27.9 points, or 0.14 percent, to 19,883.31, the S&P 500 lost 6.02 points, or 0.26 percent, to 2,265.7 and the Nasdaq Composite dropped 7.17 points, or 0.13 percent, to 5,456.66.

Since the Nov. 8 U.S. presidential election, stocks have risen on bets that Trump will enact business-friendly policies and stimulate the economy. However, some market participants are concerned that equities are pricing in a very favorable scenario, leaving them vulnerable.

Markets had all but priced in a rate increase at the Fed but the faster pace of increases seen next year may give traders an excuse to cash in the recent gains.

“I’m beginning to think the market might be looking for an excuse to take some profits,” said David Schiegoleit, managing director at U.S. Bank Private Client Reserve in Los Angeles.

“We’ve had such a strong run here for the past couple of weeks that any excuse to take some money off the board might hold a little bit more water than usual. That could be what we see here and heading into the close.”

Oil prices fell more than 3 percent on renewed concerns about an oil glut sparked by rising U.S. crude inventories in storage.

Oil major Exxon declined 1.6 percent and was among the largest drags on the Dow.

Declining issues outnumbered advancing ones on the NYSE by a 2.47-to-1 ratio; on Nasdaq, a 2.29-to-1 ratio favored decliners.

The S&P 500 posted 30 new 52-week highs and 1 new lows; the Nasdaq Composite recorded 102 new highs and 38 new lows.

(Reporting by Rodrigo Campos, additional reporting by Chuck Mikolajczak; Editing by Nick Zieminski)

Wall Street treads water as investors await Fed decision

A trader wears a hat referencing the proximity of Dow Jones Industrial Average to 20,000 as he works on floor of the New York Stock Exchange (NYSE) shortly before the close of trading in New York, U.S.

By Tanya Agrawal

(Reuters) – Wall Street opened little changed on Wednesday, a day after all three major indexes hit record highs, as investors awaited the outcome of the U.S. Federal Reserve’s meeting.

The Fed is widely tipped to lift rates 25 basis points to 0.50-0.75 percent. The announcement is due at 2 p.m. ET (1900 GMT), followed by Chair Janet Yellen’s news conference 30 minutes later.

Market participants will be paying close attention to Yellen’s tone and new forecasts, seeking clues on policymakers’ thinking on how President-elect Donald Trump’s policies will impact growth and inflation.

However, concerns over a strengthening dollar linger with the dollar index, which measures the greenback against a basket of six major currencies, hitting 14-year peaks last month.

“Markets are acting like a zombie today ahead of the Fed decision,” said Naeem Aslam, chief market analyst at Think Markets.

“It is not that they are not expecting a rate hike from the Fed, it is the element of the unknown which Yellen would deliver in her statement.”

At 9:37 a.m. ET the Dow Jones industrial average was up 0.26 points, or 0 percent, at 19,911.47, the S&P 500 was up 0.47 points, or 0.020689 percent, at 2,272.19 and the Nasdaq Composite was up 7.65 points, or 0.14 percent, at 5,471.48.

Six of the 11 major S&P sectors were lower, with the financial index’s 0.91 percent fall leading the decliners.

Wells Fargo fell 2.5 percent to $54.43 after the bank’s “living will” failed U.S. regulators’ assessment for a second time this year.

Oil prices fell about 2 percent as glut worries resurfaced after a reported rise in U.S. crude inventories.

U.S. stocks hit new all-time highs on Tuesday and the Dow Jones industrial average ended fewer than 100 points away from the 20,000 mark as a post-election rally showed no signs of fatigue.

The Dow has climbed about 9 percent since the Nov. 8 election, with gains fueled by expectations that Trump will reduce taxes and regulation and stimulate the economy.

“I don’t think the Dow is an indicator of anything because it’s such a small sample and the way in which the index is constructed,” said Patrick Kaser, portfolio manager at Brandywine Global.

“But that said, right now we’ve been in a month of bullishness and optimism and so the mood will swing to skepticism as we wait for actual policies to come out.”

Meanwhile, U.S. retail sales barely rose in November as households cut back on purchases of motor vehicles. The Commerce Department said retail sales edged up 0.1 percent. Economists had forecast overall retail sales increasing 0.3 percent.

In a separate report, the Labor Department said its producer price index for final demand increased 0.4 percent last month, the largest gain since June, after being unchanged in October.

General Motors fell 2.5 percent to $36.40 and Ford declined 1.3 percent to $12.59 following a report that China will soon slap a penalty on an unnamed U.S. automaker for monopolistic behavior.

Hertz Global dropped 1.4 percent to $24.80 after the car rental company said on Tuesday it would replace its chief executive and reduce its board size.

Declining issues outnumbered advancers on the NYSE by 1,445 to 1,133. On the Nasdaq, 1,227 issues fell and 1,028 advanced.

The S&P 500 index showed six new 52-week highs and no new lows, while the Nasdaq recorded 26 new highs and six new lows.

(Reporting by Tanya Agrawal; Editing by Sriraj Kalluvila)

Dollar steadies as pre-Fed nerves dominate

Bank notes of Euro, Hong Kong dollar, U.S. dollar, Japanese yen, GB pound and Chinese yuan are seen in this picture

y Patrick Graham

LONDON (Reuters) – The dollar steadied against the yen and euro on Tuesday after its weakest day in a week, with markets still uneasy that a Federal Reserve meeting ending on Wednesday may provoke more investors to cash in the greenback’s recent gains.

Barclays was the latest major bank to cast some doubt on a dollar rally extending into a first quarter set to be dominated by the first policy initiatives from the Trump administration.

While investors have bet on the new president taking steps to bolster growth that will push inflation higher, there are also concerns that he may spark protectionism globally, driving cash into traditional safe havens like the yen.

A rise in Fed interest rates on Wednesday, a big reason for the dollar index’s 7 percent rise since September, looks fully priced in and there are also doubts over whether the U.S. central bank will want to send a strong signal that more tightening is to follow.

“We think the meeting may be a catalyst for people to take some profit on long dollar positions,” Barclays analyst Hamish Pepper said.

“The dollar tends not to perform particularly well in December. If you put that together with a well priced Fed meeting plus already long positioning, it is the right set-up for a pullback.”

The yen strengthened to less than 115 yen per dollar in Asian trade before settling at 115.34, down 0.2 percent on the day but almost a full yen stronger than 24 hours previously.

It has borne the brunt of the dollar’s rally in the past month, down 13 percent since early October. But some traders and analysts have begun to wonder if the Japanese currency might benefit next year if global political risks grow.

Barclays forecasts the dollar weakening to 100 yen in a year’s time.

The euro was little changed at $1.0629 having gained 0.7 percent on Monday as German bund yields rose amid signs Italy will bail out Italian bank Monte dei Paschi di Siena if need be.

Sterling inched higher helped by higher than expected inflation for November and comments from finance minister Philip Hammond backing a transition period to smooth the process of leaving the European Union.

“Rates markets are discounting close to five 25 basis point Fed rate hikes by the end of 2018,” analysts from BNP Paribas said in a note to clients.

“With the Fed likely to be cautious in its forward-looking language on Wednesday, those positioned long dollars heading into the meeting may be concluding that risk-reward is not attractive for staying in positions into the event risk.”

(Editing by Robin Pomeroy)

Yellen says Fed could raise interest rates ‘relatively soon’

U.S. Federal Reserve Chair Janet Yellen speaks at "The Elusive 'Great' Recovery: Causes and Implications for Future Business Cycle Dynamics" conference hosted by the Federal Reserve Bank of Boston in Boston, Massachusetts, U.S.,

WASHINGTON (Reuters) – The Federal Reserve could raise U.S. interest rates “relatively soon” if economic data keeps pointing to an improving labor market and rising inflation, Fed Chair Janet Yellen said on Thursday in a clear hint the U.S. central bank could hike next month.

Yellen said Fed policymakers at their meeting earlier in November judged that the case for a rate hike had strengthened.

“Such an increase could well become appropriate relatively soon,” Yellen said in prepared remarks that were her first public comments since the United States elected Republican Donald Trump to be the country’s next president.

Yellen, who was to deliver the remarks to Congress’s Joint Economic Committee at 10 a.m. ET on Thursday, said the economy appeared on track to grow moderately, which would help bring about full employment and push inflation toward the Fed’s 2 percent target.

Lawmakers on the committee, which includes members of both the House and Senate, will have an opportunity to question Yellen after she speaks.

The Fed chair gave a generally upbeat assessment of an economy that continues to generate jobs at a pace adequate to absorb new employees and keep others engaged in work. Wage growth “has stepped up,” Yellen said. Consumer spending, critical as the major component of U.S. gross domestic product, “continued to post moderate gains,” and help economic growth rebound from a weak first half. She said she expects firming in global growth, for months now considered a primary risk given weakness in Europe and China.

Indeed the major question mark for the Fed may now be the actions of the president-elect. His cabinet and policies are still taking shape. But the proposals outlined in his campaign could change the Fed’s baseline outlook substantially if he follows through on plans to cut taxes, roll out hundreds of billions of dollars in new infrastructure spending, and rip up free trade agreements.

Yellen did not mention the election in her prepared remarks. Other Fed officials in recent days have said a major change in fiscal policy could force them to shift gears if, for example, inflation begins to accelerate. But they also said they need to wait and see what the new administration proposes and what gets approved by the Republican-controlled Congress.

As it stands, Yellen said the current federal funds rate of between 0.25 and 0.5 percent is boosting economic activity, and that the country has “a bit more room to run” before inflation becomes much of a concern.

Right now, she said, “the risk of falling behind the curve in the near future appears limited,” and warrants only a gradual increase in the federal funds rate.

But that could shift, particularly as the new administration takes shape.

“The appropriate path for the federal funds rate will change in response to changes to the outlook,” Yellen said.

(Reporting by Jason Lange and Howard Schneider; Editing by Chizu Nomiyama)