Fed still trembling over the yuan – Westpac

By FXStreet Sean Callow, Research Analyst at Westpac, notes that the Fed chair Yellen told Congress this week that the FOMC expects that “inflation will rise to its 2 percent objective over the medium term”, noted the 4.9% unemployment rate and the 2.7 million increase in non-farm payrolls last year.

Key Quotes

“Yellen argued that “ongoing employment gains and faster wage growth should support the growth of real incomes and therefore consumer spending, and global economic growth should pick up over time.” So much for the base case.

Markets took Yellen’s testimony fairly calmly as she spoke but the main talking points afterward were the downside risks to the outlook. Yellen noted tighter financial conditions recently, which “could weigh on the outlook for economic activity and the labor market.” But more striking was the focus on the global economy.

Famously the FOMC in Sep 2015 worried that “(r)ecent global economic and financial developments” posed a threat to growth and inflation, causing the Fed to hold steady despite many forecasts that they would raise rates, as indicated mid-2015, right until China’s currency and equities slumped in August. But tellingly, this is the first time that a Fed chair’s prepared semi-annual testimony has included the …read more

Source:: FX Street