Yellen may help pave way for higher rates on Friday

[WASHINGTON] Federal Reserve Chair Janet Yellen has struck a largely cautious tone since engineering the US central bank's rate hike last December, saying she was not convinced inflation had taken firm enough hold to justify a second move and that she was worried a weak global economy put the United States at some risk.

With many of her colleagues shifting gears in recent days and pointing squarely at a rate hike in June or July, Ms Yellen on Friday afternoon has a chance to further prepare markets and the public in an appearance where she receives the Radcliffe Medal from Harvard University's Radcliffe Institute for Advanced Study.

She is not scheduled to give prepared remarks ahead of the question and answer session with Harvard economist Greg Mankiw. But the half-hour exchange could give insight into Ms Yellen's thoughts on two key issues: whether she now has more faith that recent evidence of rising inflation is convincing, and the degree to which she feels overseas risks have receded.

Markets have already pushed forward expectations of a second Fed hike, with trading in federal funds contracts now indicating a 55 per cent probability that the Fed will move in July, about double the expectation of a month earlier, according to statistics gathered by the CME Group.

US stocks, the dollar, and Treasury yields all rose when markets opened.

Ms Yellen has a second public appearance scheduled for June 6 in Philadelphia, ahead of the Fed's scheduled June 14-15 policy meeting. Governor Lael Brainard, whose warnings about global volatility a year ago helped stay the Fed's hand, has announced an appearance next week in Washington at the Council on Foreign Relations.

Several Fed policymakers have said they felt the global risks Brainard has cited are beginning to diminish.

The flurry of Fed speakers, the continued solid reports on the US jobs market, and the timing of the Fed's meeting schedule has many analysts now expecting a July hike.

The Fed's June meeting is a week before Britain votes on whether to leave the European Union. The Fed's September and October sessions would come squarely in the middle of what may be a tempestuous US presidential campaign in which one of the candidates, Republican Donald Trump, has already said he would remove Ms Yellen from office. ]

"July looks like a window," analysts from Credit Suisse wrote in a recent review of US policy. "The economic data are now consistent with a June hike," but with the Brexit vote on the horizon "careful risk management...suggests they will delay until July."

REUTERS