US Federal Reserve Chief Janet Yellen made remarks concerning the regulators future policy move, after she hinted at rise in base interest rates. US shares slipped on Friday as investor sentiment turned bearish following the remarks.
Decrease in unemployment, inflation gaining traction and negative macroeconomic tendencies has prompted the Fed to hike the base interest rates this year. During her speech in Providence, RI, Janet Yellen stated that the US economy was improving from the weakness this year, which was termed as ‘stastical noise.’ Macro data from the Labor Department indicated that US consumer prices rose by 0.3 percent, the largest monthly increase since January 2013.
The increase in inflation indicated a growth in the economy; In April, the annualized inflation stood at 1.8 percent in April, after a similar reading in March. Yellen stated that if the economy improves, it would be appropriate at some point to raise the federal fund target. Yellen added that the interest rates would be increased gradually. Trading on Wall Street slid into the red with Dow sliding 0.09 percent and the S&P 500 slid by 0.04 percent while Nasdaq advanced by 0.12 percent.
In the last couple of years, US shares have moved close to the all-time high mark, and the gains are considered alarming. S&P 500 which hit its lowest in March 2009, is now 214 percent higher as the shares gained gradually in the last 6 years. The gains were the result of Fed policies, and the capital influx into cheaper solid US assets. In a stable economy, stock markets are expected to slide by 10 percent once in a year, and the situation last happened in November 2011. The economy is more likely to crash as stock become more expensive and overbrought.
Yellen plans to prepare the market participants to the event and to minimize the losses in US asset capitalization. The Eurozone’s bond buying program could cause a flight in capital as it is investment-friendly.[ Via ]