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The intention of the Federal Reserve Board to raise rates is clear, but it is still a question of when. In her annual speech at the Jackson Hole Summit in Wyoming, Fed Chair Janet Yellen said the data is moving in the right direction and she is philosophically inclined to increase interest rates. Nevertheless, she also indicated the data does not yet support a rate hike. The US economy is growing at a gradual pace and the jobs market is strong. However, inflation remains a sticking point. Core PCE (personal consumption expenditure), which is the Fed’s primary gauge of inflation, has been slowly rising, but remains stubbornly below the Fed’s 2% target. The July inflation report released on Friday confirmed that inflation data remains tame, but in a slowly rising trend. Personal consumption rose a seasonally adjusted 0.3% in July from a month earlier. Consumer spending climbed 0.5% in June, 0.3% in May, and 1.1% in April.

Market expectations for one or even two rate increases this year moved higher after Yellen’s speech. Within hours after the speech, the probability of a September hike rose to 42% from 24% a week earlier. Meanwhile, the probability of a rate hike in December increased to 63.6% from 51% one week ago.

Yellen’s speech led to another leg up in short-term bond yields, which have been drifting up in recent weeks in anticipation of rising rates. The sharpest moves have been at the short end of the curve. Two-year Treasury notes rose to 0.82% from 0.74% one week ago. Although this is down from the year to date high of 1.05% at the beginning of the year, the current yield is above the average for the year of 0.77%. Five-year T-bills increased to 1.20% from 1.13% one week ago, and 1.03% on August 4.

It’s worth noting that Libor (London Interbank Offer Rate), which is a key rate used by banks to price variable rate loans, has also been rising steadily this year due mostly to technical factors unrelated to Fed jawboning – more specifically, the movement of cash out of prime money market funds in response to money market reform. Libor could continue moving higher spurred in part by the expectation of a Fed rate increase.

The question now is not if, but when the Fed will raise rates. Jackson Hole revealed little new information, but only confirmed that no matter when it begins, the rate hike will be slow and gradual. The market will closely parse future data on growth, jobs and inflation for any likely impact on Fed policy.