Yellen: Economy better but timing of rate hike unclear

Stocks take big jump on news

WASHINGTON (AP) - Federal Reserve Chair Janet Yellen indicated Monday that the U.S. economy is improving but remains defined by so many uncertainties that it's unclear when the Fed should resume raising interest rates.

Speaking in Philadelphia, Yellen struck a mainly positive and optimistic tone about the economy. 

She noted that the job market had strengthened significantly since the Great Recession and said that consumer spending and economic growth seem likely to accelerate after a tepid start to 2016.

But the Fed chair suggested that a dismal jobs report that the government issued Friday had raised some doubts about the broader economy. She referred repeatedly to the uncertainties surrounding the Fed's outlook.

In doing so, Yellen dropped a reference she had made in a speech May 27 that a Fed rate hike would likely be appropriate "in the coming months." In its place, she offered no specific timetable for the Fed to act.

Yellen's speech had been highly anticipated given that it comes just a week before the central bank's next meeting. Until last week, many analysts had thought the Fed could raise rates on June 15 - or, if not then, at its subsequent meeting in late July. 

The bleak jobs report for May, and Yellen's speech Monday, seemed to increase doubts about any Fed rate hike this summer.

"She did not address the timing of the Fed's next gradual move which suggests to us that she is in no hurry," said Chris Rupkey, chief financial economist at MUFG Union Bank in New York. "We are telling clients to take the summer off. See all of you Fed watchers in September."

Investors sent stock prices up, reflecting a belief that a June rate hike is now even less likely than it had seemed after Friday's weak jobs report and that borrowing rates will remain ultra-low.

The Dow Jones industrial average gained 113.27 points, or 0.6 percent, to 17,920.33. The S&P 500 rose 10.28 points, or 0.5 percent, to 2,109.41. The Nasdaq composite index picked up 26.20 points, or 0.5 percent, to 4,968.71. The Nasdaq is close to its highs for the year.

In her speech, Yellen called the employment report "disappointing" but cautioned that it would be wrong to place too much emphasis on a single monthly report.

Without referring to any particular date, she said, "I continue to believe that it will be appropriate to gradually reduce the degree of monetary policy accommodation, provided that labor market conditions strengthen further and inflation continues to make progress toward our 2 percent objective."

Inflation, by the Fed's measure, has remained persistently below its 2 percent target for inflation.

In light of the uncertainty facing the economy, Yellen stressed, the Fed cannot move on "a preset path."