Stock prices have been buoyant throughout the morning of the last trading day of the first quarter, extending their gains after Fed Chair Janet Yellen said in a speech in Chicago on Monday that the economy remains short of the central bank’s targets for both jobs and inflation, throwing her backing to an extended period of accommodative monetary policy.
By Peter Martin
Monday, March 31, 2014
Ms Yellen believes there is ‘considerable slack in the labor market’, citing evidence in the form of the reluctance of people to quit jobs for fear that it will be hard to find another, the low level of wage growth and the large share of those looking for employment made up of the long-term unemployed. Ms Yellen said that recent reductions in the pace of new security purchases by the Fed do not represent a lessening of the commitment to revive the economy and that she thinks an ‘extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policymakers at the Fed.’
This speech underlines Ms Yellen’s credentials as one of the bigger doves among the members of the Federal Open Committee and has encouraged investors to return to the stock market. By late morning in New York on Monday, the Dow Jones Industrial Average was up 0.63% or 103 points at 16, 426 and the broader-based S&P 500 index was not far behind, climbing 0.59% to 1868.5.
Other economic news on Monday morning was mixed, with one report showing slowing business activity in the Chicago area, while a regional Fed survey indicated a pick-up in manufacturing in Texas.
The Chicago PMI slid to a level of 55.9 this month, down from the reading of 59.8 seen in February and the lowest since last summer, suggesting that improvements in business conditions in the area are losing pace. Weakness was centered around employment and new orders, the latter being significant because it is the most forward-looking component of the survey.
The Dallas Fed Manufacturing Survey jumped up to 4.9 in March (readings above 0 represent growth in this index) from a prior reading of 0.3, for the eleventh successive increase in activity. Output is climbing strongly, with the production index rising to 17.1 from 10.8 in February, while new orders advanced to 14.7, the highest level seen in this component in nine months. The strength of this report will inspire some hope for the manufacturing sector as a whole, on which will we get reports tomorrow with the ISM manufacturing index and Markit’s manufacturing PMI.
The combination of the weakness seen in the Chicago PMI and Janet Yellen’s dovish comments have served to weaken the US dollar today, pushing it lower against several major currencies. EUR/USD advanced 0.21% to 1.3783, while the British pound strengthened 0.21% against the dollar and the dollar fell 0.33% against the Swiss franc.
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