PA ANALYSIS: Hawkish Yellen should act ASAP

Added 15th February 2017

Federal Reserve chair Janet Yellen offered the market a hawkish message on Tuesday as she indicated the US economy might be poised for a series of gradual interest rate increases, starting as early as next month.

PA ANALYSIS: Hawkish Yellen should act ASAP

Federal Reserve chair Janet Yellen offered the market a hawkish message on Tuesday as she indicated the US economy might be poised for a series of gradual interest rate increases, starting as early as next month.

With her biannual monetary policy report to Congress on 14 February, which was repeated the following day in a Testimony to the House of Representatives, Yellen said the Federal Open Market Committee (FOMC) expected that the “evolution of the economy” would warrant further gradual increases of the federal funds rate “to achieve and maintain its employment and inflation objectives”.

She noted the “considerable uncertainty” surrounding the economic outlook, pointing to possible incoming changes to US fiscal policy, sources and trajectory of future productivity and international developments.

She warned a possible risk to waiting “too long” to tighten policy might lead to a more dramatic rate increase, “which could risk disrupting financial markets and pushing the economy into recession.”

Her tone wasn’t a huge surprise, building on her comments only last month.

For an economy operating at full employment, current interest rates are currently are completely “out of whack”, according to Gary Potter, co-head of the multi-manager team at BMO Global Asset Management.

He said: “I think it seems perfectly logical and realistic to expect the Fed – which is still independent - to move as they see fit because all the data suggests there is no reason why they shouldn’t.”

What Yellen managed to dispel this week, was any suggestion she might simply ‘wait and see’ what Donald Trump has planned for his fiscal spending plans.

Potter added with near-full employment, optimistic levels of small business and consumer confidence, as well as inflation moving upwards, the circumstances are such that one would expect central banks to start to nudge rates higher.

 

Kames Income Hub

home_research_centre

Vincent McEntegart, manager of the Kames Diversified Monthly Income Fund, explains how he aims to deliver a stable and sustainable income of 5% p.a.*, paid monthly, by investing in a range of asset classes

Square Mile Research

AXA Distribution Fund
AXA Distribution Fund

Talking Factsheets is a video service for users...

Visitor's Comments Add your comment

Add Your Comment

We won't publish your address

Profiles

Viewpoint

Investment Strategy

Feature

Tweets

Events

PA Channel Islands 2017
PA Channel Islands 2017

Wednesday 24 May
Royal Yacht Hotel, Jersey

PA UK Equity 2017
PA UK Equity 2017

Thursday 15 June
Radisson Blu Edwardian Bloomsbury Street Hotel

PA Investment Trusts 2017
PA Investment Trusts 2017

Tuesday 20 June
Furniture Makers' Hall

PA Income 2017
PA Income 2017

Tuesday 4 July
Radisson Blu Edwardian Bloomsbury Street Hotel 

OTHER STORIES FROM LAST WORD...