US stock market daily report (February 11, 2014, Tuesday)
February 12, 2014, Wednesday, 05:20 GMT | 00:20 EST | 10:50 IST | 13:20 SGT
On Tuesday, Janet Yellen, new Federal Reserve Chairwoman, said the markets should expect the central bank to continue to follow the low-interest-rate path laid out by her predecessor and former Fed Boss, Ben Bernanke. Fed Chairwoman said the Fed plans to hold short-term interest rates at zero “well past” the time the jobless rate falls below 6.5%. Yellen told the committee that volatility in global markets was not causing the Fed to rethink its policy stance.
In remarks prepared for a hearing in front of the House Financial Services Committee, Yellen said, “Let me emphasize that I expect a great deal of continuity in the Federal Open Market Committee’s approach to monetary policy.” New Fed Boss also said, "I served on the Federal Open Market Committee as we formulated our current policy strategy and I strongly support that strategy.”
She added that economists widely expect the Fed to continue to taper its asset purchase program at its next meeting in mid-March. The Fed has already cut its bond-purchases by $10 billion in December, $10 billion in January and is now buying $65 billion of assets each month. Yellen said, "Our sense is that at this stage these developments do not pose a substantial risk to the U.S. economic outlook.”
Yellen said that if the economy continued to improve as expected, the Fed would taper the pace of its asset purchases at future meetings. She added that the Fed’s decisions about the pace of tapering, are data dependent. The Fed expects the economy and employment to expand at a “moderate pace” in 2014 and, that inflation will move back toward the Fed’s 2% target, per Yellen. Some of this softness is due to factors that are likely to be transitory, including falling prices for crude oil and declines in non-oil import prices, per Fed Boss.
Fed Chairwoman downplayed the importance of the unemployment rate as a gauge of the health of the labor market. Yellen stressed that too many Americans remain unemployed and the labor market recovery “is far from complete.” Yellen said that workers out of a job for more than six months continue to make up an “unusually large” fraction of the unemployed and that many people working part time would prefer full-time jobs. “These observations underscore the importance of considering more than the unemployment rate when evaluating the conditions of the U.S. labor market,” Yellen said.
Feb Boss stressed that the Fed’s work to make the U.S. financial system more robust, “has not yet been completed.” She added that the Fed was reviewing possible ways to address financial stability risks associated with short-term wholesale funding. Yellen said, “We will continue to monitor for emerging risks, including watching carefully to see if the regulatory reforms work as intended.”