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11 Feb 2014
Fed's Yellen: US recovery accelerating but unemployment still too high
FXStreet (Łódź) - The new Fed Chair Janet Yellen said in her first semi-annual testimony on monetary policy and the economic outlook to the US Congress that the situation on the labor market had improved but that the economic recovery still had a long way to go.
She backed the FOMC's current strategy in which she expects “a great deal of continuity” and stated that the monthly reductions of the Fed´s bond purchases would most probably be continued at a moderate pace. She also indicated that reaching policy objectives would not trigger an automatic rate hike. It would rather serve as a point at which the FOMC would analyze the economic situation to see whether an increase would be justified.
As far as the recent turbulences on emerging markets are concerned, Yellen argued that they “don’t pose a substantial risk to the U.S. economic outlook.” She also didn't see a risk of equity bubbles forming as a consequence of quantitative easing.
"While some broad equity price indexes touches all time highs in nominal terms in the middle of 2013 and valuation metrics in some sectors appeared stretched, valuation measures for the overall market are now generally at levels not far above their historical average levels, suggesting that, in aggregate, investors are not excessively optimistic in their attitudes toward equities,” she said.
In the opinion of Rob Carnell from ING: “This sounds like she does not anticipate deviating from the $10bn taper per meeting that was announced in December, and repeated at the January FOMC meeting. A further $10bn taper in March seems probable, especially as Yellen did not think that the current volatility in Emerging Markets yet posed a substantial risk to the US economy.”
She backed the FOMC's current strategy in which she expects “a great deal of continuity” and stated that the monthly reductions of the Fed´s bond purchases would most probably be continued at a moderate pace. She also indicated that reaching policy objectives would not trigger an automatic rate hike. It would rather serve as a point at which the FOMC would analyze the economic situation to see whether an increase would be justified.
As far as the recent turbulences on emerging markets are concerned, Yellen argued that they “don’t pose a substantial risk to the U.S. economic outlook.” She also didn't see a risk of equity bubbles forming as a consequence of quantitative easing.
"While some broad equity price indexes touches all time highs in nominal terms in the middle of 2013 and valuation metrics in some sectors appeared stretched, valuation measures for the overall market are now generally at levels not far above their historical average levels, suggesting that, in aggregate, investors are not excessively optimistic in their attitudes toward equities,” she said.
In the opinion of Rob Carnell from ING: “This sounds like she does not anticipate deviating from the $10bn taper per meeting that was announced in December, and repeated at the January FOMC meeting. A further $10bn taper in March seems probable, especially as Yellen did not think that the current volatility in Emerging Markets yet posed a substantial risk to the US economy.”