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The Fed has twice cut by $10 billion the bond-buying stimulus programme, reducing it to $65 billion, and will likely continue the tapering approach unless there is sufficient “notable change in the outlook” for the US economy.
“I served on the committee as we formulated our current policy strategy, and I strongly support that strategy,” Yellen said of the fund tapering on Tuesday.
Although she acknowledged that economic recovery is “far from complete,” Yellen said that the pickup in economic activity has fueled further progress in the labour market, which justified the Fed’s latest tapering moves.
US unemployment rates have fallen from more than eight per cent last year to 6.6 per cent in January 2014, but Yellen says even that is too high.
The Fed will continue to hold interest rates near the zero mark until the unemployment rate falls below 6.5 per cent.
Yellen also commented on recent volatility in emerging markets.
“We have been watching closely the recent volatility in global financial markets. Our sense is that at this stage these developments do not pose a substantial risk to the US economic outlook.”
EPFR Global, a US-based firm that tracks the flows and allocations of funds domiciled globally, says that emerging markets – which form 40 per cent of the world’s economy – have suffered from an outflow of $12.2 billion in equity.
Most investors are redirecting this equity back into US and European markets.
But the US stock market jumped on Yellen’s comments in Tuesday trading. Reversing somewhat cautious moves across the board, the Dow Jones Industrial Average rose 1.22 per cent, the S&P 500 moved up 1.11 per cent, and the Nasdaq jumped 1.03 per cent.
In Japan, the Nikkei Index rose 0.7 per cent Wednesday on US stock market momentum, continuing its 1.77 per cent increase on Monday. Markets in Japan were closed for a national holiday on Tuesday.
South Korea’s Kospi Index also rose nearly 0.2 per cent in Wednesday opening.