U.S. Federal Reserve Chairwoman Janet Yellen said Friday an interest-rate rise may coming in a matter of “months,” as she expected the economy, and importantly, the jobs market, to continue to get better.
“It’s appropriate — and I have said this in the past—for the Fed to gradually and cautiously increase our overnight interest rate over time,” Yellen said, “and probably in the coming months such a move would be appropriate.”
She said indicators point to the U.S. economy rebounding after a difficult first quarter. “Growth looks to be picking up,” she said. The Commerce Department earlier on Friday reported a 0.8% gain in first-quarter gross domestic product.
Though the comments weren’t unusual given what some other Federal Reserve officials have recently stated, many market observers thought she would wait until a speech in early June in Philadelphia before signaling where rates would be headed. U.S. stocks lost some ground after Yellen’s comments.
The Federal Open Market Committee, which determines interest rates, is meeting for two days in the middle of June, and again in late July. Heading into Yellen’s appearance, markets priced in a 30% chance of a rate increase in June, and a 58% chance of a bump by July.
“Those who had been dubious about the hawkish rhetoric from other Fed officials have been relying on the extreme dovishness of Yellen’s late March remarks to argue that the more recent comments by officials who are not the chair do not matter,” said Stephen Stanley, chief economist at Amherst Pierpont Securities, in a note to clients. “I think what Yellen’s brief comments today tell us is that her views have evolved, perhaps more than anyone else’s, and that she is willing to contemplate a rate hike soon.”
Yellen, answering questions at a Harvard University event where she received an award, made comments that were similar to what her colleague, Fed Gov. Jerome Powell, made on Thursday.
Like Powell, Yellen also commented on weak productivity growth, which the Fed chief called “miserable.”
“That’s a serious and negative development,” she said.