Dollar turns higher after Yellen calls for gradual rate hikes

Share

Dollar turns higher after Yellen calls for gradual rate hikes

The prepared statement by Janet Yellen repeats numerous previous statements: another hike and the balance sheet reduction are expected this week.

Chairwoman Yellen heads to the House of Representatives this morning, set to deliver testimony to the Committee on Financial Services at 10 a.m. ET.

Most Asian currencies were higher on Wednesday against the dollar, which was hit by new suggestions of Russian influence in the 2016 USA presidential election and amid wider caution ahead of Federal Reserve chair Janet Yellen's semi-annual congressional address.

The real yield -- which is the nominal yield minus inflation - of the bond is now minus 1.4 per cent, up from minus 2 per cent last August.

Inflation has been running well below the Fed's 2% target in recent months, leading some analysts to argue that the policymakers should hold off on hiking rates or otherwise withdrawing monetary support for the economy.

Here are some questions that members of Congress could ask that would shed light on the core monetary policy issues in what could be Yellen's final appearance before USA lawmakers.

The Canadian dollar was down slightly too against its USA counterpart as investors awaited a Bank of Canada interest rate decision on Wednesday.

"Because we also anticipate that the factors that are now holding down the neutral rate will diminish somewhat over time", Yellen said, "additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion and return inflation to our 2 percent goal". Benchmark Brent crude rose 31 cents to $47.19 a barrel.

"I expect, and certainly hope, that this will go smoothly and it will be a gradual and orderly process", Yellen said.

Fed officials have said they plan on lifting rates at least once more in 2017 and commencing a reduction of its bloated $4.5 trillion balance sheet, which could act as an additional tightening measure.

In her prepared testimony before the House Financial Services Committee, Yellen sounded upbeat on USA economy and said she expects additional gradual rate hikes to be appropriate over the next few years to sustain the economic expansion and return inflation to the Fed's 2 percent goal.

Currently, investors are pricing in a Fed rate hike in December and the start of the trimming of its balance sheet the same month.

In a speech Tuesday, Lael Brainard, a Fed board member who has often argued for a go-slow approach to rate hikes, said she wanted to "monitor inflation developments carefully and to move cautiously on further increases" in the Fed's key rate.

As the US economy is back on track for steady growth, Fed policymakers are preparing to unwind its crisis-era policies to avoid igniting inflation pressures or pumping up asset bubbles.

"The Committee continues to anticipate that the longer-run neutral level of the federal funds rate is likely to remain below levels that prevailed in previous decades", she said in prepared remarks to Congress on Wednesday.

Share

Advertisement

© 2015 Leader Call. All Rights reserved.