While the consensus remains that September is the likely time for the first rise since before the financial crisis, Yellen appeared to hint there would be only a quarter point rise rather than half point.
She said that too much emphasis has been placed on the timing of a rate rise rather than the ‘entire trajectory of the policy’.
Yellen also seemed to remain unconvinced of the robustness of US economy, saying there needs to be ‘more decisive evidence’ that economic growth can be sustained.
“Chair Yellen’s press conference emphasised a ‘wait and see’ Fed,” said David Page, senior economist at AXA IM. “She repeated a number of times that most Fed members envisaged data improving sufficiently to warrant a rate hike later this year.”
“Unemployment was also forecast higher at 5.2-5.3% from 5.0-5.2%,” Page said. “While the rest of the forecasts were broadly unchanged, the shift in 2015 is material and reflects the impact of a soft Q1. FOMC participants also adjusted their interest rate forecasts that make up the “dots” forecast. While these forecasts require interpretation, there now appears a greater chance that the Fed will only enact one hike in 2015, followed by four hikes in 2016.”
“While we believe the data is currently strong enough for the Fed to act, the Committee will likely be very deliberate with this first move,” said Rick Rieder CIO of fundamental fixed income at BlackRock.
