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US Fed chair says gradual rate hikes, balance-sheet reduction to continue

17 July, 2017, 16:51 | Author: Alberta Rodriguez
  • Pound Slides as BOE's Broadbent Not Ready to Support Rate Hike

The Federal Reserve is planning a series of gradual interest rate hikes in coming years to maintain economic expansion and achieve its inflation target, Chair Janet Yellen said Wednesday.

In a prepared testimony to Congress, Yellen contended the economy is healthy enough to absorb further rate hikes at a gradual pace, along with a slow wind down of the Fed's $4.5 trillion bond hoard accumulated following the financial down turn. Central banks around the world have been hinting that the accommodative policies in place for years may no longer be needed amid signs that the global economy is gaining traction.

While investors and some Fed officials are anxious about the recent dip in inflation and are looking for greater progress toward the central bank's 2% target, Yellen argued that some temporary factors are holding back inflation but the Fed is still on pace to hit its target goal.

Yellen testifies before the Senate Banking Committee later in the day.

Beyond monetary policy, political tensions, which pressured the US dollar lower on Tuesday, continued to weigh on greenback Wednesday. It rose against the euro and the franc, but fell against the yen and the pound.

Delta Air Lines Inc, United Continental Holdings Inc, Alaska Air Group Inc, Spirit Airlines Inc and JetBlue Airways Corp stocks also gained at least 1 percent each.

USD/JPY fell to Y113.29, down 0.57%.

Brazil's real rose to a near-eight-week high against the greenback after former President Luiz Inácio Lula da Silva was convicted of corruption charges, reducing traders' fears that he could return to office next year to challenge the pro-business agenda of incumbent President Michel Temer.

New Zealand's benchmark S&P/NZX 50 index ended up 0.3 percent at 7,610.89, aided by industrial and healthcare shares.

Against the yen, the greenback was 0.64 percent lower at 113.19 yen following a decline in short-term USA interest rates after Yellen's testimony. Chair Yellen's persistence towards continued tightening appears to speak to a theme that was discussed at June's rate hike, in which multiple members of the bank had expressed concern around financial risks brought upon by continued loose monetary conditions.

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