Advertisement

Yellen hints at a US interest rate rise

The dollar and Treasury yields dipped following Janet Yellen's upbeat assessment of the US economy.

15-2-26-yellen-634
Janet Yellen: not a devine being

Global stocks hit new highs early this week. The FTSE All World index, America's S&P 500 and Britain's FTSE 100 all hit all-time records, while European stocks reached a new seven-year peak. Relief over the deal with Greece, firmer Chinese data and remarks by US Federal Reserve chairwoman Janet Yellen all contributed to the bullish mood.

Advertisement - Article continues below

Yellen gave an upbeat assessment of the American economy, but also pointed out how low consumer price inflation was. The dollar and Treasury yields dipped (reflecting rising prices) after her remarks.

What the commentators said

The hawks would point to her upbeat tone on the labour market, and to her signal that the Fed will drop the word "patient" from its post-meeting policy statement when it reckons higher rates could be warranted at any time.

Previously, the Fed said "patient" meant it would wait for at least two meetings to move. On the other hand, doves highlight the absence of strong wage growth and low inflation.

The upshot, reckoned Hamish McRae in The Independent, is an increase in the cost of money in June. "Well, maybe a bit later, but almost certainly by the autumn." Still, as so often, the Fed highlighted that it was dependent on the data in order to reduce the scope for a rise in rates to shock markets. "But when it comes to dependency on economic data, much depends on interpretation," said the FT's James Mackintosh.

A key uncertainty is whether wage growth will take off once "full employment" (meaning an unemployment rate of around 5.5%) is reached, as it has in the past. Another question is whether the unusually high numbers of part-time and discouraged workers will rejoin the labour market as the economy strengths, reducing the pressure for wage increases.

Will the Fed get it right? Investors who always wait with bated breath for central banks' latest Delphic remarks should remember that "central bankers are not divine beings with supernatural powers", said Satyajit Das on business-standard.com. The Swiss central bank's sudden U-turn on tying the franc to the euro is just the latest reminder of their fallibility. Don't count on a trouble-free exit from the zero-interest-rate twilight zone.

Advertisement
Advertisement

Recommended

Why Wall Street has got the US economy wrong again
Economy

Why Wall Street has got the US economy wrong again

The hiring slowdown does not signal recession for the US economy. Growth is just moving down a gear, says Brian Pellegrini.
25 Oct 2019
The Fed will print whatever it takes – what does that mean for markets?
US Economy

The Fed will print whatever it takes – what does that mean for markets?

Jerome Powell, chair of the US Federal Reserve, has vowed to keep pumping money into the economy for as long as it takes to get America back on its fe…
11 Jun 2020
What Friday's stonking US jobs report means for markets
US Economy

What Friday's stonking US jobs report means for markets

At the end of last week, US employment figures gave everyone a pleasant surprise and sparked hopes of a “V-shaped” recovery. John Stepek explains how …
8 Jun 2020
Trump urges the US Federal Reserve to bring in negative interest rates
US Economy

Trump urges the US Federal Reserve to bring in negative interest rates

Donald Trump has urged the Federal Reserve to embrace negative interest rates.
21 May 2020

Most Popular

An economics lesson from my barber
Inflation

An economics lesson from my barber

On reopening his shop after lockdown, Dominic Frisby’s barber doubled his prices. It’s all part of the post-Covid inflation process – and we’re going …
8 Jul 2020
What gold, bonds and tech stocks have in common
Stockmarkets

What gold, bonds and tech stocks have in common

"Risk off" or "safe haven" assets such as gold and government bonds have been doing well lately. But so have riskier tech stocks. That seems to defy c…
10 Jul 2020
House price crash: UK property prices are falling – so where next?
Property

House price crash: UK property prices are falling – so where next?

With UK property prices falling for the first time in eight years, are we about to see a house price crash? John Stepek looks at what’s behind the sli…
2 Jul 2020