Investors to seek any hint of Yellen timetable on rate hikes

Federal Reserve Chair Janet Yellen arrives for a reception on the opening night of the annual meeting of the world's central bankers at Jackson Lake Lodge in Grand Teton National Park, north of Jackson Hole, Wyo., Thursday, Aug. 25, 2016. Yellen is to address the gathering on Friday. (AP Photo/Brennan Linsley)

WASHINGTON — When Janet Yellen steps to the microphone Friday morning at an annual central bank forum in Jackson Hole, Wyoming, investors will be listening for one thing above all: Any hint of the Federal Reserve chair's expected timetable for the next interest rate increase.

Some of Yellen's colleagues, including the host of the forum — Esther George, head of the Federal Reserve Bank of Kansas City — have suggested that the time is ripe for the Fed to resume raising rates. Other Fed officials, including several close to Yellen, have favored a more cautious approach.

George said Thursday that if the outlook for the economy unfolds as she expects, she would vote for a rate hike at the Fed's next policy meeting, Sept. 20-21.

"As I look at the data and the economy and the progress that has been made, I judge that we are nearing full employment," George said in an interview on Fox Business Network. "In the interest of long-run sustainable growth, we should be raising rates gradually."

George has cast a lone dissent at three meetings this year in favor of higher rates and may be gaining support for her view. But the big question is where Yellen herself stands. Her speech Friday may help settle that question — at least for the moment. Yellen has stressed repeatedly that the Fed's outlook for rates depends on the most recent economic data and not on any preset timetable.

Fed leaders have at times used the Jackson Hole event to announce major policy shifts. In 2010, for example, Chairman Ben Bernanke signaled that the Fed was considering a new round of bond purchases to try to help a struggling economy emerge from the wreckage of the Great Recession. The Fed's purchases were intended to shrink long-term loan rates to spur borrowing and spending.

Some economists say they think Yellen will alert investors Friday that the central bank might be inclined to act in September.

In addition to George, two close Yellen allies — William Dudley, president of the Federal Reserve Bank of New York, and Stanley Fischer, the Fed's vice chairman — have suggested in the past week that a strengthening economy will soon warrant a resumption of the rate hikes the Fed began in December. That was when it raised its benchmark lending rate from near zero, where it had been since the depths of the financial crisis in 2008.

Dudley said in an interview last week that he believes "we're edging closer towards the point in time where it'll be appropriate to raise interest rates further."

And in a speech Sunday, Fischer said the Fed was getting "close to our targets," including being "within hailing distance" of the Fed's 2 percent goal for inflation.

Many analysts, including David Jones, chief economist at DMJ Advisors, said the recent remarks by Fed officials could be seen as increasing the likelihood of a September rate hike. But others say December remains in their view the more likely time for a resumption of rate increases.

Diane Swonk of DS Economics suggested that one reason U.S. stock averages set highs so soon after Britain's June vote to leave the European Union escalated global economic fears is a belief that the Fed will leave rates alone until perhaps year's end.

"Investors are not pricing in a Fed tightening," said Swonk, who expects the Fed to take no action until January.

The theme of this year's conference is "Designing Resilient Monetary Policy Frameworks for the Future," a nod to the tough environment the Fed faces. Inflation and economic growth remain stubbornly low, even with all the support the central bank has given the economy since the 2008 financial crisis and the Great Recession.

In advance of Yellen's speech Friday, George, Fischer and eight other Fed officials met Thursday with about 120 activists from the Campaign for Popular Democracy's Fed Up coalition. The group of policy activists, labor unions and community groups has been lobbying the Fed since 2014 to keep rates low to allow the economy to strengthen enough to benefit more Americans.

"We asked the Fed presidents to keep distressed communities in mind when they make their interest-rate decisions," said Dan Crawford, a spokesman for the liberal Economic Policy Institute, one of the groups in the coalition.

The group, wearing green T-shirts bearing the slogan, "We Need a People's Fed," posed questions about economic policy and the need for diversity to the Fed officials who took part in the hour-long discussion.

"They all agreed the Fed needs to do a better job on diversity," said Ady Barkan, campaign director for the Fed Up coalition. "It was a substantive conversation, and they said they would consider our proposals."

The coalition wants the Fed and Congress to consider changes in the makeup of the boards of directors of the 12 regional banks to promote more diversity among a group of officials that is mainly white and male and dominated by bankers.

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