Markets rally as Fed reins in rate-hike speculation
Global equity markets rallied, with the Dow hitting a new high, the dollar gained and bond yields tumbled yesterday after Federal Reserve chairwoman Janet Yellen dampened growing expectations of more than one interest-rate hike later this year.
In remarks to the House Committee on Financial Services, Ms Yellen said the US economy was strong enough to absorb further gradual rate increases and the slow wind-down of the Fed's massive bond portfolio.
The testimony depicted an economy that is growing, albeit slowly, and continues to add jobs as it benefits from steady household consumption and a recent jump in business investment.
Given current estimates, the federal funds rate "would not have to rise all that much further" to reach a neutral level that neither encourages nor discourages economic activity, Ms Yellen said in her prepared testimony.
Equities markets rose on the view the Fed's monetary policy was not going to be as aggressive as some had anticipated, said Larry Hatheway, chief economist at asset management firm GAM.
"The Fed isn't really going to upset the apple cart," Mr Hatheway said.
"There's some softening here of what the Fed is going to do, at least around rates. It doesn't necessarily answer the question around its balance sheet."
MSCI's gauge of stocks across the globe gained 0.90pc, while the pan-European FTSEurofirst 300 index of leading regional shares rose 1.64pc and emerging market stocks rose 1.10pc.
On Wall Street, the Dow Jones Industrial Average rose 130.65 points, or 0.61pc, to 21,539.72, above a high set on July 3.
The S&P 500 gained 16.44 points, or 0.68pc, to 2,441.97 and the Nasdaq Composite added some 57.55 points, or 0.93pc, to 6,250.86.
Bond yields, which move in reverse of price, fell sharply.
The benchmark 10-year Treasury yield fell to 2.302pc, its lowest in two weeks, before paring some gains to trade at 2.3141.
At the front end of the curve, the two-year yield dropped as low as 1.331pc, from 1.379pc on Tuesday, and last traded at 1.3470pc.
Germany's 10-year government bond yield fell to 0.515pc.
The dollar, which fell against the euro soon after the release of Ms Yellen's prepared remarks, reversed course and was trading near session highs against the common currency, as government bond yields in the euro area fell.