Published: Fri, July 14, 2017
Electronics | By Jesus Weaver

Fed's Yellen: 'Challenging' for United States economy to grow by 3%

Fed's Yellen: 'Challenging' for United States economy to grow by 3%

U.S. stocks closed higher yesterday, 12 July 2017 with the Dow industrials setting its first closing record in almost a month as Federal Reserve Chairwoman Janet Yellen emphasized the central bank's gradual approach to normalizing monetary policy and expressed optimism about the economy in congressional testimony.

Yellen cautioned that although the Fed's measure of inflation has been low recently, "it's premature" to say it is not on track to return to 2 per cent.

The New Zealand dollar rose against the greenback after US Federal Reserve chair Janet Yellen appeared to put more emphasis on weak inflation in testimony to Congress.

All 11 S&P stock sectors finished higher, with techs (+1.3%) topping all gainers even as Apple struggled amid continued concerns of production and delivery delays for the newest iPhone. The S&P 500 and Nasdaq Composite rallied 0.7% and 1.1%, respectively. The House remarks were seen as signaling that the Fed might slow the pace of rate hikes if inflation does keep falling below the Fed's 2 percent target.

With the unemployment rate near its historic low at just 4.4 percent, Yellen said she expects wages to begin to rise, which in turn would push prices higher.

She repeated that the Fed also expected to start reducing its balance sheet "this year".

Yellen's comments to USA lawmakers on Thursday and overnight signal that while the central bank remains keen to continue to lift rates, there's no rush and the Fed may be close to a neutral rate.

In the banking space, Commonwealth Bank, National Australia Bank, ANZ Banking and Westpac are higher in a range of 0.6 percent to 0.8 percent. While CPI may not be the Fed's preferred measure of inflation, it is released earlier and identifies whether prices are ticking higher or remain subdued. It rose to 4.9385 yuan from 4.9118 yuan and traded at 56.47 pence from 56.30 pence.

Delta Air Lines Inc DAL.N , United Continental Holdings Inc UAL.N , Alaska Air Group Inc ALK.N , Spirit Airlines Inc SAVE.O and JetBlue Airways Corp JBLU.O stocks also gained at least 1 percent each.

Technology shares also rose sharply, with the tech index also up 1.3%.

In her testimony, Yellen cited "transitory factors" keeping USA inflation low, but also acknowledged "there could be more going on there".

She said such a high growth rate would require accelerating productivity growth to two percent from the current 0.5 percent, a big jump since increases of only a few tenths of a point are considered significant.

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