Yellen reassures market that it’s business as usual
Though Janet Yellen has signalled that the case for an increase in the federal funds rate has strengthened in recent months, it would not appear that the threat of inflation is so strong as to justify raising rates now, ahead of the election. This stance is broadly in line with what bond markets were pricing for. For now the fed reserve seem content to sit back and watch the labour market conditions and would be happy to see a pickup in wages to justify their 2% inflation target, although clearly there are many in the market that think that a rise in this target to 3% may ultimately follow as the fed looks for alternative ways to stimulate the economy. The US stock market rose a modest 0.5% on the news, which is broadly in line with market expectations.