Fed wary of foreign capital’s reliability—analyst

by Ephraim Vecina12 Feb 2016
In a prepared statement released on Wednesday (February 10), Fed Chair Janet Yellen stated the need for both the government and the public to remain open to further austerity policies, especially since depending on foreign capital won’t be a viable option for the economy in the long run.
Yellen’s speech noted that demand from overseas investors—particularly Chinese nationals—has softened as of late, and this development doesn’t bode well for real estate markets. Lower bond yields in tandem with the global oil price crashes and the strengthening dollar have increased risks to the downside, according to an analyst.
“We see the continued inclusion of this text as an attempt to portray an open mind about the recent activity slowdown, and not to present a self-fulfilling picture of gloom at the Fed. Financial markets may see this as dovish speech overall, though probably not out of line with expectations,” ING Bank analyst Rob Carnell told FXStreet.
“The testimony retained the text about the possibility that rates might have to be increased at a faster than anticipated rate if growth and inflation were stronger than expected. However, that is sounding rather hollow right now,” Carnell explained.
Carnell added that Yellen’s defensiveness of the December rate hike has placed the Fed in a delicate position.
“We expect that once the questioning starts, Chair Yellen will come in for some stick from disgruntled members of Congress, some of whom may be facing a hostile electorate later this year,” Carnell said.


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