July is a live meeting - Westpac

Analysts at Westpac reviewed Yellen's speech in Philadelphia today.

Key Quotes:

"US Fed Chair Yellen delivered a highly anticipated speech in Philadelphia today. The Chair delivered a generally upbeat message and reiterated that, “further gradual increases in the federal funds rate are likely to be appropriate,” contingent on progress towards the Fed’s twin labour market and inflation objectives. The Chair acknowledged that the May jobs report was "disappointing" and "concerning" but added that, “one should never attach too much significance to any single monthly report”. She also noted that the economic positives were outweighing the negatives, that there were “tentative signs of faster wages growth” and that foreign headwinds are fading, but that “Brexit” could have “significant economic repercussions”.

Chair Yellen made one notable omission too – she declined to put a time frame on when the Fed might raise rates. Recall not even two weeks ago Chair Yellen noted a hike would be appropriate, “in the coming months”. On balance, today’s speech affirms expectations that the Fed will not be raising rates at their meeting next week, but her surprisingly upbeat tone keeps their 27 July meeting live. Atlanta Fed district President Lockhart struck a more cautious tone, noting that while the economy is still on track for 2% growth and that there’s two Fed hikes this year, if inflation and jobs data weaken it would be a “call to action” to provide more stimulus.

The Fed’s Labour Market Conditions index was weaker than expected in May, not surprising after the dismal May jobs data last week, the index fell from a downwardly revised -3.4 (was -0.9) to -4.8, versus consensus at -0.8. The puts the Fed’s LMCI at its weakest levels since mid-2009, when the US economy was crawling out of the deep recession."