A solid U.S. labor market "has strengthened" the case for the first rate increase since last December, Fed chairwoman Janet Yellen told a central banking conference in Jackson Hole, Wyoming. The gains were all but erased after Fed Vice Chairman Stanley Fischer said her remarks leave open the possibility of boosting rates in September. She pointed to steady gains in employment and strength in consumer spending.
A pragmatic compromise, as suggested by Bank of America Merrill Lynch Global Economist Ethan Harris, might be to temporarily overshoot the 2 per cent inflation target in the short term but still ensure inflation averages 2 per cent over the cycle.
U.S. stocks wavered and closed lower this week, as investors digested a key speech from U.S. Federal Reserve's Chair Janet Yellen and a batch of newly-released economic reports. The other side of the argument is that there is rising uncertainty in the effectiveness of the easing monetary policy actions of the Bank of Japan (BOJ) and the Bank of England (BoE).
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.
Among stocks making moves on Friday, Herbalife fell $1.43, or 2.3 percent, to $60.50 after news reports that that Carl Icahn, the company's biggest shareholder and defender, has been trying to unload his stake in the embattled company.
Notably, her laundry list of possible tools did not include negative rates, an idea that has been almost universally panned by Fed officials.
"The Yellen speech has not changed our base-case scenario of the next interest rate hike of 25 bps by December 2016".
Economists have said the us elections also add a measure of uncertainty to global economic outlook. "Ultimately I think that's what reduces real economic growth going forward and they don't realize that".
Fischer, speaking in an interview with CNBC at Jackson Hole, said "the evidence is that the economy has strengthened".
"I think Fed has some confidence in their economy now, and either a September or a December is inevitable".
Also, purchasing managers' index (PMI) data for manufacturing sector scheduled during the week starting August 29 will have some bearing on trading, they said.
In the week ahead, investors will focus on USA economic reports to gauge if the world's largest economy is strong enough to withstand a hike in interest rates in the coming months, with Friday's nonfarm payrolls data in the spotlight. And some have said that if the Fed does decide to act in September, it would need to further prepare investors. Instead it has kept its benchmark rate in a range between 0.25 and 0.5 percent.
The Fed's strategy to introduce monetary stimulus post-2008 financial crises has been very effective, as it cut the interest rates to near zero, and most importantly, promised to keep them low for a significant time.
"Dr. Yellen stated clearly, though, that some of the other tools now being discussed by "observers" - aka the Fed's very own John Williams - such as raising the inflation target or targeting nominal GDP, are "not actively" under consideration". She mentioned raising the Fed's 2 percent inflation target to give it more leeway or possibly expanding the types of assets the Fed could buy beyond Treasurys and mortgage-backed securities.
Yellen was the lead-off speaker Friday for the annual conference sponsored by the Federal Reserve Bank of Kansas City.
The Philippine central bank "will not necessarily have to move in sync with the Fed", though it is mindful of near-term volatility, Governor Amando Tetangco said in a text message after Yellen's speech.
Yellen is to address the gathering on Friday.