Fed's Yellen: Further Gradual Interest Rates Increases Likely Warranted

Fed's Yellen: Further Gradual Interest Rates Increases Likely Warranted

Her comments echoed ones made on Tuesday by central bank governor Lael Brainard, who expressed caution when discussing the pace of future rate hikes. Rallies in USD/CAD are to be sold it seems, although we may need to see United States crude working into and above $50 here.

It would be "quite challenging" for the USA to reach the 3% growth target set by President Donald Trump, Yellen told a Senate committee today.

The Federal Reserve is embarking on an annual summer ritual: Downgrading its overly optimistic forecasts for economic growth and, potentially, preparing for a pause in interest rate increases.

As part of its monetary policy normalization process, the Fed is going to reduce its 4.5-trillion-dollar balance sheet. But while Yellen was mostly positive, "her forward-looking comments on the economy and rates seemed a bit less emphatic than those from her press briefing last month", noted Jim O'Sullivan, chief US economist at High Frequency Economics. The current target for the funds rate is 1-1.25%, while inflation is around 1.4%, as per CNBC.

The Fed is expected to wait until more macroeconomic and inflation data is released in November or December before deciding on another rate hike, according to observers. It must now offload assets while trying to avoid wild shift in asset prices.

Yellen's remarks come as other central bankers have been expressing a desire to taper easy-money policies that have been in place in the aftermath of the 2008-'09 financial crisis. Currencies generally weaken relative to peers on domestic monetary policy that's construed as accommodative.

Yellen's statement also pushed the S&P 500 higher.

Meanwhile, the Nasdaq Composite Index rose 67.87 points, or 1.1%, to 6,261.17, for a fourth straight day of gains. Japan should open a touch higher, despite an unconvincing move from USD/JPY, with the pair looking for buyers to really step in at ¥113.00.

The U.S. dollar index, which measures the greenback's strength against a trade-weighted basket of six major currencies, rose by 0.01% to 95.50.

A neutral interest rate level refers to one that neither encourages nor discourages economic activity.

"It seems like [Yellen's] dialing back a little bit of the hawkish sentiment from last time", said Karyn Cavanaugh, senior market strategist at Voya Financial. Perhaps some disappointment has been seen with the Nigerian oil minister saying Nigeria has "no time frame to enter the OPEC production cut agreement".

Greater China markets traded sideways.