Stocks moved lower as investors played it safe ahead of an afternoon speech from Federal Reserve Chair Janet Yellen.
Federal Reserve Chair Janet Yellen signaled Friday that an interest rate hike is likely later this month, the latest in a flurry of recent statements by Fed officials that suggest a move is all but certain.
She also reiterated that the pace of rate increases is likely to speed up over the next few years.
“At our meeting later this month, the Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” Yellen said in a speech she’s slated to deliver at 1 p.m. Eastern time at the Executives’ Club of Chicago .
While Yellen couched her remark in conditional terms that depend on economic data, she preceded it by citing a job market that has been “strengthening” and inflation that has been “rising toward our target” of 2% annually.
Several other Fed officials in recent days have indicated the Fed’s policymaking committee is likely to raise its benchmark short-term rate at a March 14-15 meeting.
Fed Governor Jerome Powell told CNBC, “I think the case for a rate increase in March has come together, and I do think it’s on the table for discussion.”
Governor Lael Brainard, known as a “dove” who often prefers to keep rates low to stimulate growth, said the economy can handle a rate hike “soon.”
And New York Fed Chief William Dudley said the case for a rate increase has become “a lot more compelling.”
Fed fund futures markets now figure there’s an 82% chance the Fed will act this month, up from about 20% a couple of weeks ago.
Economists say next Friday’s jobs report could be pivotal in solidifying a decision to raise rates this month, though it likely would take both unusually weak payroll gains and a second straight month of sluggish wage growth to prompt Fed officials to seriously consider holding off. The report is expected to show employers added a solid 185,000 jobs in February.
“They’ll hike this month unless payrolls are disastrous,” Ian Shepherdson, chief economist of Pantheon Macroeconomics wrote in a note to clients.
Yellen also said Friday the Fed is likely to raise rates more rapidly over the next few years than it did in 2015 and 2016.
“Unless unanticipated developments adversely affect the economic outlook, the process of scaling back accommodation likely will not be as slow as it was during the past couple of years.”
Yellen noted that various stumbling blocks slowed the Fed’s anticipated pace of rate increases in 2015 and 2016, including the oil price crash, a strengthening dollar, market turbulence and a slump in U.S. economic and job growth.
In December, the Fed lifted its benchmark fed funds rate by a quarter percentage point to a range of 0.5% to 0.75%, its second hike in the past decade.
But the economy and labor market perked up in the second half of last year. And Fed policymakers in December projected three quarter-point rate increases this year and as many as three each and 2018 and 2019, which would bring the rate to 2.9%, according to their median forecast.
Despite the anticipated pickup, that pace of rate increases would still be measured by historical standards and Yellen repeated that the Fed expects to raise rates gradually, noting she sees no signs of a coming acceleration in inflation that could prompt an abrupt rise in rates that risks derailing the recovery.
“I currently see no evidence that the Federal Reserve has fallen behind the curve, and I, therefore, continue to have confidence in our judgment that a gradual removal of accommodation is likely to be appropriate,” she said.
Yellen cited sluggish productivity growth and an aging population as chief factors that have slowed economic growth and called for.more gradual rate hikes.
Asked during a question-and-answer period about the Fed’s likely response to President Donald Trump’s forthcoming economic stimulus program, the details of which remain unclear, Yellen said Fed officials are inclined to wait to see which measures are approved by Congress.
“I think most of my colleagues have decided that we should just be patient and wait to see what happens,” Yellen said.
Contributing: The Associated Press.
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