"... we estimate that only about half (or slightly more than half) of total technical selling was completed to-date (mostly completed by VT funds, half by CTAs, and a smaller fraction by RPs). We estimate that a further ~$100bn of selling remains to be completed over the next 1-3 weeks. As a result, we expect elevated volatility and downside price risk to persist."

Yellen Says She Still Expects Rate Increase This Year

September 24, 2015 — 2:13 PM PDT

Federal Reserve Chair Janet Yellen said the U.S. central bank is on track to raise interest rates this year, even as she acknowledged that economic “surprises” could lead them to change that plan.

“Most FOMC participants, including myself, currently anticipate that achieving these conditions will likely entail an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter,” Yellen said during a speech Thursday in Amherst, Massachusetts. “But if the economy surprises us, our judgments about appropriate monetary policy will change.”

Yellen, 69, spoke a week after the Federal Open Market Committee left its benchmark federal funds target near zero, saying "recent global economic and financial developments" might damp growth and inflation in the U.S. Concerns over a slowdown in China following a surprise Aug. 11 devaluation of the yuan triggered turmoil in financial markets and raised questions about the outlook for the global economy.

Slower demand from China, where growth is projected to drop below 7 percent this year, has helped push down commodity prices, sapping already low inflation in the U.S. The Fed’s preferred gauge of price pressures rose 0.3 percent in the year through July and has been under its 2 percent target since April 2008.

Fading Headwinds

“We cannot be certain about the pace at which the headwinds still restraining the domestic economy will continue to fade,” Yellen said in her remarks Thursday. “Recent global economic and financial developments highlight the risk that a slowdown in foreign growth might restrain U.S. economic activity somewhat further.”

The Fed has been forced to weigh headwinds against signs of continued growth in the domestic economy. U.S. employers have added 1.7 million jobs to payrolls this year, pushing unemployment down to 5.1 percent in August, its lowest in more than seven years.

“On balance the economy is no longer far away from full employment,” Yellen said in her speech. “In contrast, inflation has continued to run below the Committee’s objective over the past several years, and over the past 12 months it has been essentially zero.”

Yellen highlighted that inflation expectations have remained well-anchored, but said that the central bank shouldn’t take it for granted that they will stay that way. She said she thinks “temporary effects” of falling energy and non-energy import prices are the driver behind the tepid inflation, and expects price pressures to rebound barring further decline in crude oil prices and further appreciation in the dollar.

Stocks trim gains after Fed signals possible December rate hike

U.S. stocks briefly erased modest gains on Wednesday after the Federal Reserve announced it would keep interest rates unchanged at near zero, but signaled that a rate increase is still on the table “at its next meeting” in December.

Investors perceived the statement as slightly hawkish, as the central bank showed less worry about global financial and economic developments hurting the U.S. economy than it did at its September meeting.

The vote was 9 to 1, with Richmond Fed President Jeffrey Lacker dissenting for the second meeting in a row. Lacker wants to raise the so-called fed-funds rate to 0.25 points.

“There is not too much surprise in the statement, but investors should realize that the Fed will raise rates, either in December or early next year, because they have to” said Marig Ogg, president at Tower Bridge Advisors.

According to the CME Group’s Fed Watch Tool, the market is pricing in 46.5% probability in December. Those odds were 34% before the announcement. The first fully priced-in rate increase has been pushed out to March 2016.