The U.S. Federal Reserve now expects to begin shrinking its balance sheet this year if the economy evolves broadly as anticipated, the central bank said Friday in its semiannual monetary policy report to the Congress.
Even with the economy picking up and inflation expected to eventually move up towards the two percent target, from about 1.4 percent now, the Fed repeated its view that "the ongoing strength in the economy will warrant gradual increases in the federal funds rate".
The spread between 10-year U.S. Treasury yields and their Japanese counterpart is close to the widest in almost two months, drawing bets that play on the divergence between rising Western government bond yields and low Japanese equivalents. After the summary is completed, the committee members will question her. Her term as chair expires on February 3 and President Trump has not yet indicated if he'll nominate her to a second term or pick someone new. Last month we saw weekly earnings for April rise 1.7pc excluding bonuses, well below the 2.9pc CPI numbers, which are due out next week. "It was pretty straight down the middle".
In response, Yellen said that the Fed now had a "relatively light regulatory agenda" but she did not pledge to delay pending regulations until Quarles is confirmed.
Strategists at Brown Brothers Harriman don't expect Yellen to break new ground in her testimony. The jobless rate has averaged 4.5 percent so far this year but wages have not seen much of a bump and inflation has been under the Fed's 2 percent target for most of the last five years.
She also mentioned that the Fed anticipates it will start reducing its balance sheet "this year".
"Both the size and composition of the balance sheet is alarming", Hensarling said.
She blamed a recent slowdown in inflation on temporary factors. It's premature to reach the judgment that we're not on the path to 2 percent inflation over the next couple of years.
The economy is growing at a moderate pace, expected to pick up in H2. It raised interest rates in June for a second time this year and forecast another hike in 2017.
The U.S. added 222,000 jobs in the month, and the estimated gains in April and May were revised upward by 47,000 jobs. The broader All Shares declined by 0.04 percent or 1.73 points to finish at 4,735.12.
Energy stocks also turned in a strong performance, moving higher along with the price of crude oil.