Global stocks mixed ahead of Yellen testimony

Global stocks mixed ahead of Yellen testimony

Global stocks mixed ahead of Yellen testimony

The Fed has projected that the USA economy will grow roughly 1.8 percent of GDP per year over the next two years. While the reaction to the revelation has, predictably, broken along partisan lines, members of the Senate are more likely to concentrate on passing health care legislation after Majority Leader Mitch McConnell said he is delaying the August recess by two weeks in order to get through a legislative backlog.

While June's USA payroll report keeps the central bank on track to raise rates once more this year and begin unwinding its $4.5 trillion balance sheet, it also suggests that Yellen's decision to hold interest rates lower than some critics and colleagues preferred has helped heal some of the harm done by the Great Recession.

Considerable strength was also visible among steel stocks, as reflected by the 1.7 percent advance by the NYSE Arca Steel Index.

Dimon, who serves on the board for the New York Fed, warned Tuesday that unwinding quantitative easing (QE) programs - both in the United States and in other countries around the world - could pose some substantial risks for the global economy.

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. Yellen said she did not expect the kind of large-scale economic disruptions of the type suggested by Dimon.

Higher US interest rates and Treasury bond yields raise the opportunity cost of holding gold, which yields nothing and costs money to store and insure.

By her testimony yesterday, the economy is now on an even keel, near or beyond full employment. "That expectation is based on our view that the federal funds rate remains somewhat below its neutral level", she added.

Yellen's testimony still noted that she expects gradual rate hikes to be appropriate over the next few years.

While the Fed forecasts a further tightening of 100 basis points by the end of 2018, the bond market pegs that at around 45bp.

"In doing so, the committee recognized the considerable progress the economy had made - and is expected to continue to make - toward our mandated objectives", she said. Banks are flush with cash after clearing the Federal Reserve stress tests, raising the prospect that financial giants could turn to acquisitions as a way to grow. The Fed still feels the economy needs loose, or accommodative, monetary policy, so a lower neutral rate means the Fed may feel compelled to slow the pace of rate hikes down the road. The Fed's main gauge for inflation, the personal consumption expenditures price index, rose only 1.4 percent in May from the previous year.

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