3 hints that the US central bank might not raise interest rates in September

Ms Janet Yellen, chair of the US Federal Reserve, at a news conference following a Federal Open Market Committee meeting in Washington, D.C., on June 17, 2015.
Ms Janet Yellen, chair of the US Federal Reserve, at a news conference following a Federal Open Market Committee meeting in Washington, D.C., on June 17, 2015.PHOTO: BLOOMBERG

US Federal Reserve chief Janet Yellen may be a "Decemberist" - investors' nickname for those US central bankers who want to wait to raise interest rates until the end of the year.

The tally of Fed officials who want to hike this year rather than next year is still 15-2. Seven US central bankers forecast one hike or none at all in 2015, new Fed projections released Wednesday showed, up from three in March.

There are four remaining meetings of the Fed's interest rate policy-setting committee this year. Two of them - one in September and the other in December - have press conferences, which is why economists are highlighting those dates as probable for a rate increase.

But a close read of what Ms Yellen emphasized on Wednesday suggests it would take sustained momentum to get the US economy past the hurdles she still sees in its path.

Here's a closer read of what she said:

1. US consumer spending outlook unclear

In her statement on Wednesday, Yellen said the fundamentals underlying household purchases "appear favorable," but in the question-and-answer period, she expressed some doubts. Consumer spending is growing "at a moderate pace." She said "the jury is out" on why Americans remained tight-fisted with savings as gas prices fell, and as they stay tame.

"Given the drags on energy and trade, you have to be confident on where the consumer is to believe policy rate hikes this year are appropriate," said Michael Gapen, chief U.S. economist at Barclays Capital Inc. "To say 'the jury is still out' could be interpreted as saying she has little confidence in her outlook for growth, labor market improvement, and the path of short-term interest rates."

What's more, Gapen said, "this riddle about what's changed with consumers may not be resolved as soon as September if the committee insists on decisive evidence of momentum, so her comments seem to weigh against a rate hike in about three months."

2. Job market has room to heal

The share of US workers feeling confident enough to quit their jobs has moved up since last year, the labor-force participation rate is showing early signs of stabilizing after a protracted decline, and the US is gaining jobs at an above-trend pace. Even so, after noting that "labor market conditions have improved somewhat further," Yellen emphasized areas where the jobs picture could look better - and cited very gradually improving measures.

"Some cyclical weakness in the labor market remains," she said, highlighting the depressed participation rate, subdued wage growth and an elevated share of people working part time for economic reasons. "Although progress clearly has been achieved, room for further improvement remains."

3. Rate hike not ironclad

"I can't give an ironclad promise" that policy makers will raise rates this year, Yellen said in response to a reporter's question following her opening remarks. "If economic conditions unfold in the way that most of my colleagues and I anticipate, we see it as appropriate to raise rates. And, as you can see, the largest number of participants anticipate that those conditions should be in place later this year."

The message here, said Michael Hanson, senior U.S. economist at Bank of America Corp. in New York, is that the probability of an interest-rate hike this year isn't 100 per cent and that negative surprises could delay a tightening.

BLOOMBERG