Janet Yellen says Fed misjudged inflation, will continue raising interest rates

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Spot gold rose 0.1% to Dollars 1,294.62 per ounce at 0108 GMT.

"Sustained low inflation such as this is undesirable because, among other things, it generally leads to low settings of the federal funds rate in normal times, thereby providing less scope to ease monetary policy to fight recessions", Yellen said. Key among current uncertainties are the forces driving inflation, which has remained low in recent years despite substantial improvement in labor market conditions. The dollar index, measuring the green money against the basket of six major currencies, rose 0.31 percent to 92.73 points. The yen pared some of the previous day's gains, which followed North Korea's declaration it could shoot down US warplanes.

US POLITICS WATCH: House Republicans and the Trump administration officials are due to give details of the plans for a long-awaited tax proposal on Wednesday, which are expected to reduce individual and corporate tax rates.

Hopes were also raised of lower U.S. corporation and individual taxes after President Donald Trump hosted a bipartisan round table discussion on tax policy at the White House.

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"In response, the Federal Reserve will likely continue to remove monetary policy accommodation gradually", added Dudley, a close ally of Fed Chair Janet Yellen and a permanent voter on monetary policy.

Evans' view appears to be in the minority at the Fed, where decisions on the appropriate level of interest rates are made every six weeks or so. "The impact of a successfully implemented (tax overhaul) plan would be far-reaching with President Trump placing a key focus on bringing back funds from USA firms "parked overseas".

Not only is there a "high probability" of a US rate hike in December, but the so-called dot-plot - which charts expectations of individual Fed members - suggests policymakers still envision three rate hikes next year. Speaking at the National Association for Business Economics annual meeting Tuesday, Yellen indicated a gradual increase was likely the right path for interest rates. In the previous session, prices fell 1.3% in what was the biggest loss in over two weeks.

Platinum fell 0.2 percent at $920.20 per ounce, after hitting $912.50, its lowest since mid-July.

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"The divergence between USA and euro zone data surprises is closing rapidly and while the once popular dollar parity forecasts still look ridiculous, the euro looks past its peak", said Sean Maher, an independent macro-strategist based in London.

-Germany's 10-year yield increased one basis point to 0.406 percent.

The Japanese yen is down by 0.3% at 112.06 per dollar.

OIL: Benchmark U.S. crude rose 24 cents to $52.12 per barrel on New York Mercantile Exchange.

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-The euro sank 0.5 percent to $1.1792, the weakest in five weeks.