In Philly, Fed Chief Janet Yellen backs interest rate rises but is Sphinx-like on timing

Federal Reserve Chair Janet Yellen still wants to raise interest rates, but won't boost the price of money just yet.

"I continue to think that the federal funds rate will probably need to rise gradually over time to ensure price stability and maximum sustainable employment in the longer run," which is the Fed's job, Yellen said in remarks Monday to the World Affairs Council in Philadelphia.

She and her Federal Open Market Committee colleagues don't think weak hiring reports for May and April mean the economy is slowing. But they don't want to lift interest rates too fast, or spook cautious business owners and investors, either, she told the lunch crowd in a ballroom at the Hyatt at the Bellevue.

"What is certain is that monetary policy is not on a preset course," Yellen added, promising to review "new data" before raising rates.

"She dropped the 'rate increase in coming months' language from this speech," noted Bill Stone, Philadelphia-based chief investment strategist for PNC Asset Management Group. "This speech sealed the coffin" on a rate increase for the FOMC's June 14-15 meeting, which had been considered likely as recently as last week.

"We'll need a pickup in hiring" to get a rate hike in July or later this summer, Stone added, saying that Yellen "did a good job" calming securities markets, which rose after her remarks.

Why raise rates at all? Over chicken and vegetables, Yellen told William R. Sasso, chairman of law firm Stradley Ronon Stevens & Young L.L.P. and her neighbor on the dais, that she's concerned about retirees having a tough time supporting themselves "in this low-interest-rate environment."

Unemployment, Yellen told the crowd, has dropped below 5 percent. That's the level some economists have speculated represents a "natural" level below which pressure builds to raise wages, even without productivity growth.

But Yellen noted that weak business investment, based partly on concerns about weak foreign demand, had hurt American workers' productivity.

The Fed's goals include 2 percent annual inflation. Lately, prices have risen more slowly, but Yellen said higher pay, energy prices and housing rates are likely to boost consumer costs by at least that much over the next couple years.

The Fed also needs to raise rates so it can do more - such as cut them again - the next time there's a financial crisis, she said.

At the close of the U.S. financial markets Monday, the Dow Jones industrial average was up 113.27 points to 17,920.33, and the Standard & Poor's 500 index gained 10.28 points to 2,109.41, flirting with a 10-month high.

On Friday, stocks and U.S. Treasuries had fallen on the Labor Department's report that only 38,000 jobs had been created in May, less than one-quarter of what was expected. Real estate, utilities and other interest-rate-sensitive assets had rallied at the prospect that money would stay very cheap.

Given last week's weak hiring data, "June is not likely to see a rate hike by the FOMC," and July is also "a long shot," Robert Eisenbeis, economist at Sarasota, Fla.-based Cumberland Advisors, told clients in a note.

By September, Eisenbeis concluded, the Fed will have enough data to boost rates, "if the data suggest that a rate hike would be appropriate."

But a fall rate hike would leave the Fed open to criticism that it was seeking to influence the November elections, analyst James M. Meyer noted in a report to clients of Boenning & Scattergood in West Conshohocken.

"Confidence in the Fed is already on shaky ground; a bait and switch [delaying] a summer rate hike will only further undermine what little credibility the committee has left," Lindsey Piegza, chief economist for Stifel Nicolaus & Co.'s fixed-income unit, said Friday.

One bad monthly job report "should not be enough to dissuade them" from a rate increase; if the Fed stalls now, Yellen's future warnings are not likely to be believed, Piegza added in an interview.

When asked by an audience member Monday whether she thought Republican presidential candidate Donald Trump - who has suggested he might try to force Treasury bond buyers to accept reduced payments as if they were investors in his former casinos - would "crash" the U.S. economy, Yellen sidestepped the question.

"We're very focused on doing our jobs," she said. "We'll see what happens."

Yellen did not take questions from reporters.

After her remarks, she left the hotel to visit a job-training program at West Philadelphia Skills Initiative, 3801 Market St.

Her host, Philadelphia Federal Reserve Bank President Patrick Harker, has made linking publicly funded education programs to real-world jobs a theme of his leadership.

JoeD@phillynews.com

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Staff writer Erin Arvedlund contributed to this article.