Daily Commentary BY THE CURVE TEAM –

Markets Poised

11th of April, 2017

A sense of calm across markets continues as Janet Yellen speaks openly on policy.

In the face of escalating geopolitical tensions, markets have remained poised. Most markets were relatively quiet over the past 24 hours with equities steady, bonds edging higher and currencies tracking sideways in tight ranges. The one exception has been commodities. Oil is rallying on obvious concerns over the middle east while iron ore continues to tumble, down 20% since mid March.

Last night also saw FOMC Chairman Janet Yellen speak openly about monetary policy when she appeared at an event hosted by the University of Michigan’s Ford School of Public Policy.

Reflecting on where policy has come from and the time the Fed Funds rate was set at zero, she said “I simply could not have imagined that it would be as long as it turned out to be, which was seven full years.” Still reflecting on the extreme setting of monetary policy, she added that “Before, we had our foot pressed down on the gas pedal trying to give the economy all the oomph we possibly could.”

Comparing where policy has come from to where it is now going, Yellen characterised its by saying the Fed is “now allowing the economy to kind of coast and remain on an even keel to give it some gas, but not so much that we’re pressing down on the accelerator. That’s a better stance of monetary policy.”

The outlook for US monetary policy and the expected continued normalisation of their setting of interest rates and balance sheet tapering will have an impact on the RBA and our setting of monetary policy. In this months Curve Insights I take a look at the divergence of monetary policy between the US and Australia and what it means for the outlook for interest rates in Australia.

David Flanagan

Director - Interest Rate Markets