Inflation concerns remain despite USA recovery, says Yellen

Gary Cohn

A DAY ahead of Federal Reserve Chair Janet Yellen's testimony to Congress on the state of the U.S. economy, two of her colleagues cited low wage growth and muted inflation as reasons for caution on further interest rate increases.

The inflation-adjusted gross domestic product is estimated to have increased at an annual rate of 1.5 percent in the first quarter, and she said "more-recent indicators suggest that growth rebounded in the second quarter".

Low inflation remains a concern for U.S. economy, USA federal reserve chairman Janet Yellen warned on Wednesday, despite delivering an upbeat assessment of the United States economy.

In her testimony, Yellen expected the US economy will continue to expand at a moderate pace over the next couple of years, as the steady job gains would support income growth and then consumer spending. Hong Kong's Hang Seng index was up 0.9 percent.

FED TALK: Yellen's comments to Congress assuaged concerns among some traders that the Fed was raising interest rates too quickly in the face of stalling inflation and sluggish USA economic growth of just 1.4 percent in the first quarter.

"Because the neutral rate is now quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance", said Yellen. Yellen specifically said that this normalization plan is expected to begin this year.

In what may be one of her last appearances before Congress, Ms. Yellen depicted an economy that, while growing slowly, continued to add jobs, benefited from steady household consumption and a recent jump in business investment, and was now being supported by stronger economic conditions overseas.

She cautioned that possible changes in the administration's economic policy and spending are a "source of uncertainty" in the country's economic outlook. Trading of Nifty 50 index futures on the Singapore stock exchange indicates that the Nifty could surge 49 points at the opening bell. Everything the US Federal Reserve chair says is closely monitored, of course, but traders were particularly surprised by her comments on inflation during the past two days of testimony to Congressional committees.

The Australian dollar strengthened against other major currencies in the Asian session on Friday, as most Asian stock markets traded higher, though gains are modest in most markets.

The euro was up 0.20% against the dollar to last trade at $1.1415 ahead of the European open. South Korea's Kospi gained 1.2 percent to 2,419.18. Oil rose 1.3 per cent overnight.

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