Yellen’s Dovish Remarks Fuel Stock Market Rally, Again

Yellen’s Dovish Remarks Fuel Stock Market Rally, Again

$DIA, $SPY, $QQQ, $VXX

US Fed Chairwoman Janet Yellen said Tuesday that the central bank envisions a gradual pace of interest rate increases in light of global pressures that could weigh on the US economy.

Ms. Yellen did not specify a time frame for more hikes. She said the risks to the United States remain limited, but cautions that that assessment is subject to “considerable uncertainty.”

In dovish remarks to the Economic Club of New York, she said the central bank is monitoring the effects of a global economic slump, lower Crude Oil prices and stock market turbulence. She said that given the risks, the Fed will “proceed cautiously” in raising rates.

Most economists expect no hike at the Fed’s next policy meeting, to be held 26-27 April.

Yellen’s remarks on the Fed’s economic outlook and interest rate policy have been highly anticipated by investors trying to divine the timing of the next rate increase.

When the Fed met 2 weeks ago, it kept its Key rate unchanged and signaled the likelihood of just 2 rate increases this year. Most economists concluded that no rate increase would likely occur before June.

But jawboning last week from several of the Fed’s regional bank Presidents raised the possibility that the central bank will decide to raise rates in April.

One of them, Dennis Lockhart, President of the Fed’s Atlanta regional bank, said in a speech that he thought the strength of the most recent US economic data could justify a rate increase as early as April.

he message from Mr. Lockhart and some other regional bank Presidents seemed to depart from the signal sent by the statement the Fed issued on 16 March, and by the news conference Ms. Yellen held afterward.

In a speech in Singapore Tuesday, John Williams, President of the Fed’s San Francisco regional bank, said his outlook for both the US and the global economies remains largely unchanged over the past few months. He said the Fed has made it “abundantly clear” in its communications that it expects to raise rates gradually.

Whatever decision the Fed makes in April will hang on its view of the economy’s durability.

In the past week, some reports have produced weaker-than-expected readings, including a sharp drop in orders for long-lasting manufactured goods and soft consumer spending. Those reports led some economists to downgrade their forecasts for GDP growth in Q-1 from a 2% annual rate to 1%.

The consumer spending report also showed that the Fed’s preferred inflation gauge is signaling that inflation remains well below its target mark.

For the 12 months that ended in February, inflation rose just 1%. “Core” inflation, which excludes the volatile items of food and energy, increased 1.7%.

So, because of the subpar inflation and the weakness in consumer spending, which drives about 70% of economic activity, many economists still say the Fed will be cautious about raising rates.

Tuesday, US major stock market indexes finished at: DJIA +97.72 at 17633.11, NAS Comp +79.84 at 4846.61, S&P 500+17.96 at 2054.99

Volume: Trade was moderate with about 944-M/shares exchanged on the NYSE:

• NAS Comp -3.2% YTD
• Russell 2000 -2.5% YTD
• S&P 500 +0.5% YTD
• DJIA +1.2% YTD

Stay tuned…

Paul Ebeling

HeffX-LTN

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