QE to continue for some more time, says Janet Yellen

Indian markets likely to see upside as Yellen's testimony means liquidity rush will continue

Hours after RBI governor Raghuram Rajan attempted to allay fears on the rupee, Janet Yellen, nominated to be the new boss of US Federal Reserve, said the US economy and labour markets were functioning “far short of their potential and had to improve before the stimulus programme could be rolled back".

Yellen said this in a testimony prepared for her nomination hearing on Thursday before the Senate Banking Committee.  

Yellen has said: “A strong economy will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases. I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.”

The banking committee, which comprises of 12 Republicans and 10 Democrats, will vote at a later date on whether to advance her nomination to the full Senate, said Bloomberg.   

This is the first time Yellen has expressed her views on monetary policy after June, when she emerged as a key contender for the top job at the Federal Reserve. Economists say that she is expected to continue with the quantitative easing programme for some more time till jobless data comes well below the current 7.3%, even though auto and housing are doing better than the past.   

Indian markets will possibly inch up after this development as it means the liquidity rush is likely to continue for some more time.

However, while strategists at foreign brokerages believe that November may not see much of a disruption in the equity markets, December could be slightly messy as a number of global events come together. As the transition at the Fed happens in December, markets across the globe may remain jittery. However, the election fever may continue to provide some stimulus to the markets in January 2014.