– This is the script of CNBC's news report for China's CCTV on July 13, Thursday.
The stock market climbed Wednesday with the Dow Jones industrial average hitting a record after Federal Reserve Chair Janet Yellen delivered testimony to Congress, which was considered to be more dovish than expected.
Yellen did not offer many details on when the central bank would start to sell the bonds it acquired during the financial crisis other than saying it would begin later this year.
Instead, Yellen said rate increases and balance sheet reduction would be gradual.
She also commented on the Fed's inflation outlook. Yellen indicated that Fed would not be increasing inflation target beyond 2% as this 2% is more of a goal than a limit.
However, if core inflation persists below 2%, there might be a reevaluation of monetary policy. At the same time, Yellen also expressed that the rate hikes are not set in stone. As such, in light of such dovish tones, the market believed that Fed would most likely not increase its interest rates this September.Wall Street has speculated on the course of Fed interest rate hikes this year and when it would unwind its balance sheet.
She revealed it will most likely begin this year with her hoping that it would be better it is as soon as possible. She also reiterated that the main aim of Fed's balance sheet is to return to the levels with only treasuries — meaning that all mortgage-backed securities that were bought after the financial crisis would be completely removed from the balance sheets. However, Yellen also repeatedly affirmed that the time in which reduction of balance takes place is not of importance as it will not have any large impact on the market.
As Fed Chair Janet Yellen gets closer to the end of her term, speculation about whether she'll be sticking around is intensifying. At least two House members asked Yellen during her semiannual testimony Wednesday to Congress whether she expects President Donald Trump to nominate her for a second term. And when asked if she had anticipated that this would be her last appearance before the House Committee on Financial Services? Her reply was, "It may well be".
Markets interpreted her reply as a signal that she will not be seeking for a re-election during Trump's term as President.
As the market's expectations towards September rate hikes are dimmed, it fuelled a sharp boost in risk assets.
The Dow Jones Industrial Average gained 123 points, going up by 0.5%, closing at another record high.
However, immediately after her statement, the U.S Dollar Index fell rapidly, receiving only very small adjustments thereafter. Alongside the dollar, the bond yields also moved lower. Meanwhile, U.S gold saw a immediate increase, logging its consecutive three days bounce-back.
Analysts have expressed that market reactions were overly-optimistic and might misinterpret what Yellen had said.
Investors are keeping watch of the second day meeting to see if Yellen would provide more explanations or corrections to the above announcements that she had made. Besides, IMF Chief Christine Lagarde had also expressed in an interview with CNBC that she is very confident of the policies that Fed is implementing and also believed that they are in control of any possible risks.
We will continue to provide you with the latest updates. Brought to you by Qian from CNBC Asia's headquarters.