Stocks sank and turned mixed Friday afternoon after Federal Reserve Chair Janet Yellen said the U.S. economy is improving and she foresees an interest rate hike, but offered no timetable and counseled that any hikes should be gradual.
ON WALL STREET: At the close, the Dow Jones industrial average was down 53 points, about 0.3 percent, at 18,395.4. The Standard & Poor’s 500 index was off 3.4 points, about 0.2 percent, at 2,169, but the Nasdaq composite was up 6.7 points, about 0.1 percent, at 5,218.9.
OIL PRICES: As markets closed, benchmark U.S. crude oil shed 2 cents to $47.31 a barrel on the New York Mercantile Exchange. In London, Brent crude, used to price oil internationally, gained 8 cents to $49.75 a barrel.
YELLEN’S SPEECH: “The U.S. economy was nearing the Federal Reserve’s statutory goals of maximum employment and price stability, Yellen said in prepared remarks to an international gathering of central bankers in Jackson Hole, Wyoming. “In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.”
Yellen did not indicate when the U.S. central bank might raise rates, but her comments reinforced the view that such a move could come later this year. The Fed has policy meetings scheduled in September, November and December, Reuters reported.
Yellen said the Fed raised rates this past December, its first hike in nearly a decade, but it has held off further increases so far this year due to a global growth slowdown, financial market volatility and generally tepid U.S. inflation data.
She devoted much of her speech to outlining how the Fed may deal with future recessions now that many economists and Fed officials believe that an aging population and other dynamics appear to be slowing U.S. economic growth over the long term.
Because slower growth means future U.S. interest rates will likely also need to be lower on average, some analysts have suggested that the Fed will have less room to fight future recessions because there will be less room to cut rates.
Such a view is “exaggerated,“ Yellen said, because the Fed will be able to use bond purchases and forward guidance to ease conditions. It may also want to explore other options, including broadening the range of assets it can purchase, raising the inflation target, or targeting nominal GDP, she said.