Janet Yellen Markets Once Knew Returns
It felt like the good old days in markets Wednesday, when most everyone seemed like a winner thanks to a dovish-leaning Janet Yellen. The Federal Reserve chair delivered a minor surprise in her semi-annual testimony to Congress when she didn’t just mindlessly repeat the Fed’s mantra that the recent slowdown in inflation is due to temporary items such as lower prices for wireless telephone services and prescription drugs. Instead, she hinted that what’s happening may be more than transitory.
Investors interpreted the comments as meaning a September interest-rate hike is in doubt as the rate of inflation falls further below the Fed’s 2 percent target. The Dow Jones Industrial Averaged jumped more than 100 points, bonds of all stripes rallied and emerging-markets strengthened the most since March amid speculation the Fed is down shifting into “go slow” mode. That’s not a foolish assumption, given how the Fed has often started out in recent years as sounding very hawkish before having to tone down the rhetoric as inflation data disappointed on the downside even with improvements in the labor market. For most markets, that’s an ideal environment as long as the economy stays in the not too hot, not too cold zone.