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Published: Tue, August 30, 2016
Economy | By Melissa Porter

Yellen puts rate hike on the table


The Fed has said it could raise rates twice this year, but the market has been focused on one hike at most and more likely December, than any other month, given the inconsistency of data and the USA presidential election.

Yellen sketched a generally upbeat assessment of the economy in a speech to an annual conference of central bankers in Jackson Hole, Wyo. She pointed to strong gains in employment and strength in consumer spending. Ms. Yellen stated that the Fed expects a modest growth in real gross domestic product (GDP), further improvements in the labor market, and the inflation to touch 2% over period of next few years.

On Thursday, San Francisco Fed President John Williams and Kansas City Fed President Esther George defended the need to raise rates, albeit gradually, to keep the United States economy from overheating.

"As ever", she said, "the economic outlook is uncertain, and so monetary policy is not on a preset course".

Still, some economists have said they think conditions are ripe for the Fed to boost rates next month.

They said the presidential election likely means the Federal Open Market Committee - the group charged with setting interest rates - will not raise rates before November to avoid appearing political and to avoid what could be a volatile stock market depending on the outcome.

After today's remarks, there is now an increasing possibility that the Fed may even act as early as the meeting in September or October.

Meanwhile, the Fed's Deputy Governor, Stanley Fischer has suggested that a decision could be made at the next meeting in September - should the economic parameters continue to improve. The rate had been kept at a record low near zero since the depths of the 2008 financial crisis.

The labor market has been on the rise in broader terms, despite the fact that the unemployment rate has stayed near 5% for most part of the year. Low rates encourage borrowing and risk-taking, which can bolster economic growth.

But to combat future downturns, she said the Fed should explore other options, too. But she said those options would require more study.

In South Korea, the Kospi was down 0.2% with shares of Hyundai Motor Co. falling to its lowest level in a week, after its workers rejected a wage deal agreed to by their leaders and management, a rare move that could signal more industrial action and production losses at South Korea's largest auto maker. Productivity growth has weakened sharply in recent years and has been a major factor in holding the economy back. Yellen is to address the gathering on Friday.

"Our communities are being sacrificed for an inflation enemy that isn't here", said Rod Adams, a community organizer for Neighborhoods for Change in Minnesota.

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