Tuesday, 21 November, 2017

Stock Market Rises After Yellen's Capitol Hill Testimony

Stock Market Rises After Yellen's Capitol Hill Testimony Stock Market Rises After Yellen's Capitol Hill Testimony
Jeannie Matthews | 15 February, 2017, 00:59

The recent rise in mortgage rates may restrain housing and Yellen stuck to message that a rate hike will likely be appropriate at one of its coming meetings if employment and inflation evolve in line with expectations.

The testimony of U.S. Federal Reserve Chair Janet Yellen before the Senate Banking Committee drove the greenback to a four week high but the lack of commitment to a timeline and optimistic view of the U.S. economy boosted the stock market.

Fed member forecasts for rates suggest that the central bank will raise rates three times in 2017, but the market isn't expecting a rate increase before the Federal Open Market Committee's June meeting, according to CME Group data (http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html).

Therefore, Yellen noted - as she's done before - that waiting too long to raise rates "would be unwise" as it might force the central bank to increase them more quickly later.

"We're still early into the new administration so we're yet to get details of fiscal strategy and that's going to have an important impact on how the Fed guides policy", said Simon Derrick, chief market strategist with BNY Mellon in London.

Still, Yellen's language was a bit surprising after she spent most of past year talking about asymmetric risks being to the downside, since the Fed has little traditional ammunition with its key rate still near zero.

For instance, St. Louis Fed President James Bullard said the current balance sheet policy makes no economic sense because the Fed is pushing up the lower end of the yield curve while pushing down on other parts of the curve.

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In her testimony, Yellen emphasized that the economy had added almost 16 million jobs since employment hit a trough in early 2010, and that the unemployment rate had fallen by more than half from its peak in 2010 to January.

"I would also hope that fiscal policy changes will be consistent with putting USA fiscal accounts on a sustainable trajectory", Yellen told the Senate banking committee.

Grant spoke a day ahead of Fed Chair Janet's Yellen's semiannual monetary report to the Senate.

Before Yellen took the hot seat Thursday, Richmond Fed President Jeffrey Lacker said it's "pretty clear" any new fiscal policies will require higher rates. Republican Senator Thom Tillis questioned Yellen's numbers of the availability of loans, calling them "absolutely defiant of what I'm seeing in the small business community and community banks particularly in North Carolina", his home state. "With many investors having loaded up on Trump trades after the elections, their willingness to continue to give the benefit of doubt to the new administration appears to be wearing thin".

Stephen G. Cecchetti, a professor at Brandeis International Business School and a former adviser at the Bank for International Settlements in Basel, Switzerland, criticized the letter in a blog post, saying that USA regulators have played a major role in shaping international financial regulations in past decades, to the benefit of American consumers and businesses.

After Yellen' optimism about the USA economy the data on Wednesday has a chance to validate her view. "I would say every meeting is live".

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