Yellen functions as the nation’s economic weatherwoman, and on Wednesday, she sounded more anxious than at her last public appearance, in December.
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– Expressed sympathy with committee members who raised concerns about chronically higher-than-average unemployment among black Americans. Dean Heller (R-NV) pointed out that the crash in financial markets occurred right after the Fed’s 0.25% rate hike in December.
“She spent some time talking about financial conditions becoming less supportive, the appreciation of the dollar and financial stress in commodity-producing economies”, he said.
“I don’t know that there’s anything reassuring coming out of her testimony”, he said. Until there is greater clarity on the ability of U.S. growth to weather a weak external backdrop, the risk for further dollar capitulation remains.
“These developments, if they prove persistent, could weigh onthe outlook for economic activity and the labor market”, sheadded. “The Fed expect to see oil and dollar stabilise, and a return to the 2% inflation target in the next year,”.
The dollar hurts US companies that sell products overseas because it makes those goods more expensive for foreign buyers and that is hurting American manufacturers.
However, Yellen did suggest that such risks could delay plans for raising short-term interest rates.
While much of Thursday’s discussion centered around what the Fed could or couldn’t do if the economy worsened, Yellen maintained her tone of cautious optimism about the overall economy. Her view of the relationship between Fed rate increases and stocks could affect future Fed moves.
Yellen’s comments on Wednesday have been widely blamed for the volatility in markets on Thursday.
Asjaya Indosurya Securities analyst William Surya Wijaya said the positive local sentiments should drive traders to keep accumulating stocks on Thursday, especially when the rupiah showed a positive trend. But she added that declines in that country’s currency have intensified concerns about China’s economic prospects. Convulsions in financial markets, it seems, could restrain economic growth. Yellen attributed the result to weakness in business stockpiling and export sales.
Q. Are there any downsides to Yellen’s explicit reference to the stock and bond markets in her testimony?
Economists Malcolm Barr, Bruce Kasman and David Mackie said that the USA central bank could set a rate of -1.3%, and the Bank of England, the European Central Bank and the Bank of Japan could go for -2.5%, -4.5% and -3.45%, respectively. All three indexes are down at least 10 per cent since the beginning of the year.
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“This recovery is the most dismal, tepid recovery we have ever had in recorded history”, said Rep. Robert Pittenger, R-North Carolina.
