They should have known better, those central bankers and policy-watchers who thought that Janet Yellen’s speech at Jackson Hole, Wyoming, on Friday would mark a volte-face. Yellen, who skipped last year’s meeting, came to Jackson Hole under pressure from important colleagues to commit to raising interest rates, preferably starting next month. The raise-rates-now contingent is not easily ignored: It includes, among others, William Dudley, William Lockhart, John Williams, and Esther George, presidents of the New York, Atlanta, San Francisco, and Kansas City regional Federal Reserve banks. Williams puts it this way, “In the context of a strong domestic economy with good momentum, it makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later.” They believe that the risk of not acting, which includes future inflation and the bursting of home and share price bubbles, exceeds the risk that a small rate increase will turn the current 1 percent growth rate into a new recession. Jacob Frenkel, former governor of the Bank of Israel and chairman of JPMorgan Chase International added his support for an increase, “Everything that was supposed to happen” as a result of zero interest rates “has happened…. There will always be headwinds.”

Yellen bowed in their direction by conceding that the expanding economy has “strengthened” the case for gradual rate hikes, hinting that she is a tad more likely to respond to continued good news with a rate increase than in the past. When rates are raised, after a gradual process she expects them to settle at 3 percent, rather than the 7 percent average between 1965 and 2000. But the Fed chair gave no commitment to begin such a gradual rise next month or even this year. In short, as Margaret Thatcher once said of herself, “To those waiting with bated breath for that favourite media catchphrase, the U-turn, I have only one thing to say: … The lady’s not for turning.” One market participant was more than a little annoyed, “More hawkish talk to be followed by dovish action.” Translation: “Yellen talks the talk of rate increases and walks the walk of zero interest rates.” In short, the Fed remains dependent on “incoming data”, the only alternative in the view of vice chair Stanley Fischer, being to “toss a coin”.