Wall Street Responded Janet Yellen Remark With Positive Sentiment
Janet Yellen showed her cautious move has pushed themarket into positive territory. Her dovish approach in raising interest rate has driven U.S. stock market to hit the highest level in 2016.
In her speech at the Economic Club of New York, Janet Yellen said the current condition of global economy presents a heightened risks to economy. Therefore it is appropriate for Federal Reserve to proceed cautiously in increasing interest rates.
"I consider it appropriate for the committee to proceed cautiously in adjusting policy," Yellen said as reported by Bloomberg. "This caution is especially warranted because, with the federal funds rate so low, the FOMC's ability to use conventional monetary policy to respond to economic disturbances is asymmetric."
This month the Fed set its benchmark lending rate target to remain steady at 0.25% to 0.5%. The U.S. central bank also revised down the median estimate for rate increase to two, from four projected hike announced last December
Yellen's cautious approach is contrasting her from hawkish approach from other policymakers, such as chief of Philadelphia and Atlanta Federal Reserves. They supported a more aggressive approach to continue the plan to increase more interest rate this year.
Following her remark, U.S. stocks rallied. Standard & Poor's 500 Index (.SPX) was up 0.5% to recover from its earlier loss at 0.4%. The S&P is closing at the highest level on Tuesday to 0.88% higher at 2,055.01 and has fully recovered from its worst loss. All of its 10 major sectors in S&P also increased, with tech stocks (.SPLRCT) reached the highest gain at 1.58%.
Other indexes also rallied. Dow Jones industrial average (.DJI) climbed 0.56% to end at 17,633.11 points, while Nasdaq Composite (.IXIC) rallied 1.67% and closing in at 4,846.62.
Chief Market Analyst at Commonwealth Foreign Exchange Omer Esiner was a bit surprised with Yellen's approach as he told Reuters, "Given the much less dovish-than-expected commentary we got from a number of Fed speakers last week, many were looking for a shift in tone from Ms. Yellen and we didn't get that."
USA Today reported that Yellen's comments come at a critical time for markets. As the stock rally starting Feb. 11 has lost some of momentum. Her speech has triggered another positive sentiment and put a new momentum for Wall Street to rally further.
Yellen was known for her ability to choose between hawk and dove in her monetary approach. During the 1990's economic boom she took hawk position to take advantage of the economic condition, while this time she takes more dovish approach. Many analysts said her discreet and careful examination of the economic condition enable her to become either dove or hawk according to circumstances.
Following Janet Yellen remark, Wall Street hits the record high in 2016 on Tuesday. The market reacted positively after her speech in the Economic Club Of New York.