For this day we covered the testimony given by the US Federal Reserve Chair, Janet Yellen on May 7th, 2014. Yellen repeated her stance that the economy was still in need of lots of support given the "considerable slack" in the labor market. She cited various reasons for why the economy still needed help.
One of these issues was the geopolitical tension between Russia and the Ukraine. This is a problem because if there is an embargo on Russian oil, this could negatively affect US Oil prices. However, after Yellen's testimony to Congress was given, Russian President Vladimir Putin called on pro-Moscow separists in Ukraine to postpone a vote on secession. He also announced the pulling back of Russian troops from the Ukrainian border. In addition to this, the dollar-denominated Russian shares (.IRTS) hit 5-week high. This was considered to be a breakthrough in one of the worst crisis' between the East and the West since the Cold War.
She cited a bad housing market because the housing market also saw struggles for the first time in years. New homes were down 13% year over year. Sales of existing homes down 8% and applications for new mortgages hit a 14-year low.
Yellen enforced her doubt in the economy by talking about extended periods of low rates and how this could lead to increase in risky investments. The Fed also reduced monthly bond purchases from $55 billion to $45 billion and the stimulus program is winding down. In her opinion, the treasury has to find a way to entice people to buy bonds, so that the interest rates will go up.
Problems with the labor market is that there has been a high long term unemployment causing jobless to hit a 5-year low of 6.3%. There is also a high number of people working part time and seeking full time employment.
Some of the effects of Yellen's comments are...
Dow Jones up 0.7%
S&P 500 up 0.6%
-Emerging market shares (.MSCIEF) also held firm.
-Brazilian shares (.BVSP) his a six-month high.
-Mexican stocks hit a three-month high.
-Asian Markets also saw an increase, Nikkei which is a price-weighted index comprised of Japan's top 225 blue chip companies on the Tokyo stock exchange, rose 0.7%. And MSCI's broadcast index of Asia-Pacific shares outside of Japan rose 0.15% which seems small but this is after hitting 5-week lows in the same day.
-Scott Irace and Grant Bradshaw
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