Vice Chairman of Federal Reserve, Stanley Fischer, said in his speech on Sunday that goals the central bank had set are about to being met, as US economy is reaching full employment and inflation is rising.
„We are close to our targets. … Looking ahead, I expect GDP growth to pick up in coming quarters, as investment recovers from a surprisingly weak patch and the drag from past dollar appreciation diminishes,” he noted during his speech in Colorado.
Speaking about employment, he said: „The behavior of employment has been remarkably resilient,“ and added that inflation minus food and energy costs was „within hailing distance of 2%“, which is Fed´s inflation target.
Even though he did not mention his opinion on when we could expect rate hike, what he said clearly increases odds that we might see Fed raising interest rates by the end of this year. Currently, odds of a rate increase are 50-50. Last time Fed raised interest rates was in December 2015, when it increased borrowing costs from 0,25% to 0,5%, which was for the first time in seven years.
More information and guidance about the possibility of rate increase will be provided by Fed´s No.1 policymaker, Janet Yellen, on Friday the 26th of August in Wyoming.
Still, we could have also heard about raising interest rates on Tuesday, when William Dudley, New York Fed president, said it can come as early as next month. This sent down defensive sectors – telecoms and utilities – and caused the decrease of whole S&P 500. These groups of stocks have faced downsides for four weeks, currently down 6% from their peak in July.
If Janet Yellen will support rumors about rate increase, we can expect defensive stocks to decrease even more.