Yellen tells investors exactly what they want to hear
INVESTORS around the world liked what US Federal Reserve chair Janet Yellen didn’t say in her address to Congress yesterday, sending share markets higher.
She didn’t say inflation was expected to remain soft, despite recent statistics indicating a slowdown in price growth.
Instead she pointed to temporary factors that had kept inflation low as she highlighted steady wage growth, job creation and manufacturing strength, all of which indicated her plan for modest and gradual interest rate rises was on track, economists said.
The steady outlook for the US broadly sent stockmarkets higher, with the Dow Jones Industrial Average hitting a fresh high and Australian shares – along with the Australian dollar – also climbing. The ASX closed up 1.1 per cent while the Aussie was buying US77.10¢ yesterday, its highest level since March.
European and Asian markets were widely tipped to show similarly strong increases overnight.
Dr Yellen said although US gross domestic product had grown a moderate 1.5 per cent in the first quarter this year, there was evidence it had rebounded in the second quarter.
“In particular, growth in household spending, which was weak earlier in the year, has picked up in recent months and continues to be supported by job gains, rising household wealth and favourable consumer sentiment,” she said.
Business investment had also “turned up” this year and stronger economic growth internationally had increased US manufacturing production and exports. St George/Bank of Melbourne economist Besa Deda said Dr Yellen’s remarks were “not dissimilar to that made at a press conference after the June policy meeting”.
“Yellen sounded slightly more cautious on inflation, but continued to suggest rates will be raised only gradually,” Ms Deda said. ANZ economist Jo Masters said Dr Yellen’s testimony had broadly been interpreted as dovish.