In her semi-annual monetary policy report to the US Congress, Federal reserve chairperson Janet Yellen gave a balanced reading on the US economy’s health but warned that “considerable uncertainty” about the outlook could lead to interest rates rising earlier, or later, than currently expected. Yellen said the jobs market had “registered notable improvements” this year but the rate of economic growth “bears close watching”.

Yellen also commented on the valuation of social media and biotechnology stocks, saying “they appear to be stretched” compared to historical norms. Although the her testimony was carefully balanced, it makes clear that if jobs growth continues at its current rapid rate, it could force the Fed to raise interest rates earlier than expectations for the second half of 2015.

In the meantime, the UK jobless rate fell to 6.5 per cent in the three months through May, the lowest since the fourth quarter of 2008 and from 6.6 per cent in the three months to April, the Office for National Statistics said last week. Meanwhile, Britain’s inflation, as measured by the Consumer Price Index, rose more than expected from a four-and-a-half-year low of 1.5 per cent in May, climbing to 1.9 per cent, its highest level since the start of the year. However, inflation is still below the Bank of England’s (BoE) target of two per cent.

Positive news on unemployment and inflation may exert pressure on the BoE as its policymakers consider when to raise interest rates, which have been at the historic low of 0.5 per cent for more than five years.

Finally, German investor confidence continued to decline as it dropped for a seventh consecutive month in July due to the risks posed by worries over the conflict in Ukraine and the slowdown in euro-area growth. The index of investor and analyst expectations edged down to 27.1 in July from 29.8 in June, compared to a median estimate by analysts of 28.2, the Zew Centre for European Economic Research said.

This article was compiled by Bank of Valletta for general information purposes only.