FTSE Rallies on Yellen Speech

The FTSE 100 was bolstered by a strong opening for the US markets, after Janet Yellen, the Federal Reserve chair, gave a dovish speech to the US congress.

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shareprices.com - Friday, July 14, 2017

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Yellen’s prepared remarks, released in advance of her appearance, indicated that interest rates would not have to rise much further to reach a neutral level. She also said that the Fed will be monitoring inflation closely, and that the pace of price rises should be below the bank’s two percent target.

Aberdeen Asset Management investment strategist Luke Bartholomew’s assessment of the statement was that it could make another interest rate hike by the US less likely. He explained that the main mystery of the US economy lately has been why low unemployment growth has not translated into stronger growth of wages and prices. The Fed has always maintained that inflation will eventually pick up, but the statement suggests that the Fed isn’t actually as sure about inflation as they had initially been leading people to believe.

If US rates remain low for longer, then that is good for stock markets, and this was reflected in the S&P 500 and the Dow Jones, and the FTSE 100 followed suit and built on the gains in the USA, although there was some weakness in the local markets - with Royal Bank of Scotland struggling after agreeing a £4.2 billion settlement with the US Federal Housing Finance Agency. The settlement related to the sale of mortgage backed securities, and was far bigger than most analysts had predicted.

 

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