It is going a long morning in the foreign exchange market with traders waiting patiently for Janet Yellen to deliver her first semi-annual testimony on the economy and monetary policy. Her prepared remarks were released at 8:30am ET, 90 minutes before she begins her speech on Capitol Hill. When Bernanke was Fed Chairman, he changed the timing of release to give investors an opportunity to digest the report with the hope of minimizing volatility. While the dollar initially traded higher on the back of the release, it has since given up all of its gains. The rise in U.S. yields indicates that investors expect continued cuts in QE this year as Janet Yellen’s continues tapering asset purchases.
Here are my top 10 takeaways from her prepared remarks. The bottom line is that there will be continuity. She shares Bernanke’s optimism about the economy, frustration with the unemployment rate and lack of concern about the swings in emerging markets. She also refuses to commit to anything before the next Fed meeting, choosing instead to say there is no preset course for bond purchases and tapering. Changing the unemployment rate threshold remains a possibility in March but we don’t expect Yellen to reveal any of her plans today because there’s no benefit to front running the FOMC. Nonetheless, she will come under tough grilling by members of the House of Representatives today and the Senate Banking Committee on Thursday but we expect her to exhibit significant grace under pressure.
My Top 10 Takeaways from Janet Yellen’s Prepared Remarks:
1. Expect Continuity > Taper to Continue in Measured Steps
2. There’s No Preset Course for Anything
3. Don’t Expect a Rate Hike when the Unemployment Rate Drops to 6.5%
4. 6.5% is a Threshold for Re-considering Overall Economic Outlook
5. Yellen Saw Economic Improvements in Second Half of Last Year
6. But She’s Not Satisfied with Labor Market Recovery
7. Not Happy with Unemployment Rate because it Doesn’t Provide a Full View of Jobs
8. Don’t See the Swings in Emerging Markets as a Big Risk for US Outlook
9. Believes Softness in Inflation Likely to be Transitory
10. Expects Monetary Policy to Remain Extremely Accommodative after QE Ends