Federal Reserve chairwoman Janet Yellen’s remarks on Wednesday were seen by the markets as moderately dovish, sparking a dollar sell-off and mild rallies in commodities and equities.
“It would be wrong for me to provide you a road map,” said Yellen on Wednesday afternoon. “[But] an increase [in interest rates] is certainly possible this year.”
The members of the Fed’s policy board are locked in a debate on when will be the right time to raise rates, which have been near zero since December 2008. Since its decision is now entirely dependent on US data, a rate increase could happen at any future meeting.
Yellen added that people are putting too much emphasis on when the first increase happens – she said it really doesn’t matter “whether it is September or December or March”, while adding that the process of raising rates will be a gradual one.
Before Yellen’s press conference, the FOMC released a policy statement that modestly upgraded its assessment of the economy on Wednesday, which was largely expected and did little to change market participants belief that an interest rate increase will happen later this year.
“Economic activity has been expanding moderately after having changed little during the first quarter. The pace of job gains picked up while the unemployment rate remained steady,” the Federal Open Market Committee said in its policy statement.
The official statement had little impact on the markets – the larger movements didn’t happen until Yellen started answering questions.
The dollar slipped by 0.8 percent to 1.1338 against the euro, while the Dow Jones industrial average and S&P were each up 0.3 percent, a reversal of earlier losses. US 10 year treasury bonds were down to 2.314 percent from 2.38 before the press conference.
In commodities, the most-actively Comex gold contract was last up $5.30 to $1,186.20 per ounce, while Comex copper rose 0.75 cents to $2.6230 per pound. Light sweet crude (WTI) oil futures gained roughly 40 cents on the back of the speech to $60.33 per barrel.
The CME Group’s FedWatch, which have long been used to express the market’s views on the likelihood of changes in US monetary policy, has seen some interesting moves today.
This morning FedWatch put the odds of a rate increase in September ay 25 percent. After the policy statement was released, the probability rose to 28 percent but when Yellen spoke the odds dipped to 19 percent, signally the dovish perception.
(Editing by Tom Jennemann)
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