Yellen signals readiness for Fed rate increase

STORY:

KEY POINTS:

In prepared remarks, Yellen did not indicate if she still expected a rate hike would be warranted at the Fed's last remaining policy meeting this year on Dec. 15-16.

She said job growth through October pointed to a labor market that was healing but not yet at full strength. She also reaffirmed her view that the drag from abroad on U.S. economic growth and inflation would start to moderate next year.

Already, she saw risks from abroad as having dissipated since the summer, and noted that consumer spending was "particularly solid" and its outlook remained positive.

COMMENTS:

MICHAEL O’ROURKE, CHIEF MARKET STRATEGIST AT JONESTRADING IN GREENWICH, CONNECTICUT:

"I was a little surprised she sounded as hawkish as she did given we're two days away from the non-farm payrolls report and a couple of weeks away from the Fed FOMC meeting. She gave the impression the Fed is still looking to make a move here in December even despite yesterday's weak ISM numbers. 

"The market is still digesting a couple of different things. I think we're still digesting yesterday's data and Yellen's comments. In the end the key driver's going to be non-farm payrolls.”

RICK MECKLER, PRESIDENT OF INVESTMENT FIRM LIBERTYVIEW CAPITAL MANAGEMENT IN JERSEY CITY, NEW JERSEY:

“Pretty much as expected, there is hardly a surprise in it. When you undertake a policy as they have for so many years of an extraordinary lowering of rates and you let it last for a very long time, it no longer becomes an extraordinary action, it becomes your normal approach to policy. I think that is what (Yellen) fears the most, is that even if the timing is not perfect, is that if they don’t begin to move rates back to what they consider to be a normal level.

"I don’t think you could say anything more than we plan to do this in December. There could be events I suppose, terrorism or otherwise, that could make you postpone, but I think the certainly of it is up over the ninety percent mark. I think the Fed has given investors a lot of time and a lot of direction that they plan to do this. If it is coming as a surprise to you now, you just haven’t been following this.”

GENNADIY GOLDBERG, INTEREST RATES STRATEGIST AT TD SECURITIES IN NEW YORK:

"There wasn’t a very big change in tone from Yellen. Fairly balanced but she continues to hint that December could be the time for the increase. If you look through it there are plenty of dovish points. There was quick curve flattening immediately after the statement but the longer-term impact will be pretty muted. The impact wasn’t large. Fairly modest, I’d say. Overall it should be a muted reaction going forward."

VASSILI SEREBRIAKOV, CURRENCY STRATEGIST AT BNP PARIBAS IN NEW YORK:

"Overall, Yellen gave a fairly positive assessment of the economy that would be consistent with the Fed raising rates at their December meeting. The closer we get to the December meeting, even if the Fed keeps the core message intact, I think the markets will increasingly expect a hike."

KIM RUPERT, MANAGING DIRECTOR OF GLOBAL FIXED-INCOME ANALYSIS AT ACTION ECONOMICS IN SAN FRANCISCO:

"I had a chance to skim the statement. The statement was as expected. Yellen didn’t definitively say December 16 is the day for the increase, but she made case for that timing. She couldn’t front-run the FOMC. I don’t think Treasuries prices will erode much further from here. We’ve pretty much priced in a 25 basis point increase."

MARKET REACTION:

STOCKS: U.S. stock indexes were little changedBONDS: U.S. bond prices edged lowerFOREX: The dollar was slightly higher against the yen, little changed against the euro

(Americas Economics and Markets Desk; +1-646 223-6300)