US Federal Reserve chair Janet Yellen has moved to soothe nerves fractured by the central bank’s decision a week ago not to lift its key Federal Funds rate, as some had expected it to do.
That non-decision sparked a week of volatile trading on financial markets around the world as commodities plunged, mining shares sold off and financials were buffeted.
Markets were also whacked by the weaker than expected early report on Chinese manufacturing, and the VW emissions control scandal in the US that has now spread to Europe.
This morning in a speech in the US Yellen made it clear that the Fed remains on track to lift rates this year.
She however had a couple of provisos – so long as inflation remains stable and the US economy is strong enough to boost employment, rates will rise (which were two of the reasons for last week’s non-decision.
“Most FOMC participants, including myself, currently anticipate that achieving these conditions will likely entail an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter,” Yellen said in prepared remarks at the University of Massachusetts, near Boston.
And she was upbeat about the health of the US economy:
“Prospects for the U.S. economy generally appear solid. Monthly payroll gains have averaged close to 210,000 since the start of the year and the overall economy has been expanding modestly faster than its productive potential.
"My colleagues and I, based on our most recent forecasts, anticipate that this pattern will continue and that labor market conditions will improve further as we head into 2016,” she said.
Her comments should help steady markets for the next few days until the doubts about China are tested late next week with the next set of data releases.
The Yellen comments saw the US dollar rise, and our dollar was held under 69.90 US cents in early Asian trading.
Our market will start with a small gain on the ASX this morning, judging by overnight futures trading.
That was after the ASX rebounded yesterday from Wednesday’s two year low. The ASX 200 index finished on Thursday with a gain of 73.57 points, or 1.5%, to 5071 points.
On Wall Street this morning, the Dow fell 56 points, or 0.4%, to 16,224, but that was much better than its earlier 264-point deficit.
The S&P 500 fell 5 points, or 0.3%, to 1,934, after being down as many as 30 points earlier.
And the Nasdaq Composite Index shed 13 points, or 0.8%, to 4,740. Earlier in the session, the Nasdaq had been down as many as 83 points.
In Europe, the Stoxx Europe 600 index dropped 2.1%. The German DAX 30 index slid nearly 2% as BMW shares plunged 5% on a report that one of its cars had shown higher than expected emissions in a test, like VWs. VW shares lost almost 2.3% on news the emissions scandal had spread to Europe.
In Asia, Japan’s Nikkei 225 index lost 2.8% on returning from a three day break, but the Shanghai market ended up 0.87%.
