Here are key concerned areas as to why Fed is deferring its monetary policy easing:
- Foreign economies and their financial markets need to be stable.
- Further dollar appreciation is desired, because that may hamper inflation and exports targets, and damage U.S. manufacturing.
- Fed expects a larger contribution to U.S. output through housing segment.
- Commodity prices need to stabilize to help foreign producers find a better footing for growth.
- Inflation is a two-sided risk: Yellen is sceptical that the recent rise in core inflation, which strips out food and energy, “will prove durable.” She is watching closely.
As a result, the Fed Chair Yellen at the Economic Club of New York mentioned that the caution in raising rates is especially warranted and the Fed has considerable scope for stimulus if needed and the central bank could deploy forward guidance and QE if needed.
In terms of the outlook for rates, Yellen reiterated that the FOMC expects gradual rate increases in the coming years but noted that the future rate path is necessarily uncertain.
Elsewhere, US Treasuries moved lower pressured by the likelihood of a Fed rate hike earlier than earlier expected, currently, 10Y US treasury is trading at 1.8351% yield by 8:27:07AM EDT.
