Janet Yellan, U.S FED chair, gave positive inclinations in Tuesday’s 6 month Monetary Policy Report for rate increases.
According to Janet Yellan, the two main elements of the U.S recovery, labour and price stability have ‘made important progress, especially toward the objective of maximum employment in 2015. However, Yellen also added that ‘wage growth remains sluggish, suggesting that some cyclical weakness persists.’
The crux of the report leading from Yellan’s statement on labour was in her comments on the federal funds rate. She noted that the Committee ‘can be patient in beginning to normalize policy’, which means that ‘the Committee considers it unlikely that economic conditions will warrant an increase in the target range for the federal funds rate for at least the next couple of FOMC meetings.’
However, the language used later in the report gave confidence to stock markets as Yellen noted that, based on continuing improvement in the labour market, ‘the Committee is reasonably confident that inflation will move back over the medium term toward our 2 percent objective.’
On the phrase ‘reasonably confident’, U.S markets rallied with close of trade figures for the USA30 [Dow] up 0.5%, USA500 [S&P500] up 0.3% and the USTECH100 [Nasdaq] up 0.1%. The increases may have been muted but these U.S indices are still at all-time highs.
The report also noted risks involved with foreign economic developments, both in China and Europe that will affect the outlook for U.S economic growth. However, Yellen was optimistic regarding the effect of low oil prices being a ‘significant overall plus, on net, for our economy’, as she pointed out that consumer spending ‘has been lifted by the improvement in the labor market as well as by the increase in household purchasing power resulting from the sharp drop in oil prices.’
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