March 19th 2014 – Stocks Drop After Yellen Speaks of Rate Hikes

Stocks eased off session lows but still finished firmly in the red today after Federal Reserve Chair Janet Yellen suggested interest rate hikes would happen about six months after quantitative easing ends.

In its policy statement, the Fed said the benchmark federal-funds rate will remain near zero for a “considerable time” after its asset-purchase program ends. Yellen attempted to clarify the term, saying it is “hard to define” but “probably means something on the order of around six months.”

The $10 billion reduction was largely in line with market expectations. The decisions passed on an 11-1 vote, with Narayana Kocherlokota voting against.

The Fed dropped the unemployment rate as its definitive yardstick for measuring the strength of the economy and emphasized it would rely on other factors in deciding when to boost interest rates.

Reiterating the Federal Open Market Committee’s statement, Yellen said policy makers agree inflation will rise “gradually” toward the central bank’s 2 percent target, despite recent readings well short of that objective.

Yellen also noted that the labour market has improved faster than had anticipated, though the economy still needs monetary support.

On Wednesday, Vladimir Putin signed a treaty formally making Crimea part of the Russian Federation, but said he was not looking to take control of any other regions of Ukraine at a speech in front of parliament on Tuesday, helping to calm markets.

News Sources:  CNBC and CNN Money

My Market View:

I think there was a sense of panic at the time of Janet Yellen’s statement which quickly recovered.  I think she just felt first-hand the power she wields with every word that comes out of her mouth.

The taper was expected, but that’s still leaves $55 billion being pumped in this month.  And when her remarks were clarified about the rate changes, the market quickly recovered, so all in all, not much by the way of controversy in my opinion.  As a lot of people are talking about this being the top for a while, I am going to take the contrarian view and say that I think we will see a new all-time high soon.