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22 Aug 2014
Yellen’s inconsequential speech - ING
FXStreet (Guatemala) - Rob Carnell m analyst at ING Bank NV explained that most pundits were expecting this to be a largely inconsequential speech, and that is exactly what it has turned out to be.
“Fed chair, Janet Yellen, skirted around the issue of future monetary policy by noting that whilst there were a number of factors that might mean the labour market was less of a threat to inflation than in previous business cycles, equally, there were factors that might make it more so”.
“Whilst clearly Yellen gives more weight to the former arguments, she also acknowledged that the labour market had made improvements”.
“As such, this was classic, economist “…On the one hand… and on the other…”, and gives nothing away. The key theme might be summarised as “Uncertainty”. And the Fed typically likes to play safe with monetary policy when it is unsure”.
“That said, we continue to think that the tone of the FOMC in September will be somewhat more hawkish than it has been recently, and look to recent FOMC minutes as a hint in this direction”.
“This is not to say that there will be a sea-change in the Fed’s stance, but enough of a shift to encourage thoughts of an earlier-than-expected first Fed rate hike, and possibly cause a bit more selling pressure at the front end of the yield curve and dollar strength”.
“We also think that the chances of an April 2015 rate hike remain good, with the economy picking up pace in recent months, and leaving the housing-related and weather weakness of 1H2014 behind”.
“Whilst it is tempting to think that this may result in an eventual and perhaps sharp rise in longer dated bond yields, evidence so far this year is building that the economy continues to need low bond yields in order to make progress, and as such, any sell offs are likely to be self-defeating and short-lived”.
“Fed chair, Janet Yellen, skirted around the issue of future monetary policy by noting that whilst there were a number of factors that might mean the labour market was less of a threat to inflation than in previous business cycles, equally, there were factors that might make it more so”.
“Whilst clearly Yellen gives more weight to the former arguments, she also acknowledged that the labour market had made improvements”.
“As such, this was classic, economist “…On the one hand… and on the other…”, and gives nothing away. The key theme might be summarised as “Uncertainty”. And the Fed typically likes to play safe with monetary policy when it is unsure”.
“That said, we continue to think that the tone of the FOMC in September will be somewhat more hawkish than it has been recently, and look to recent FOMC minutes as a hint in this direction”.
“This is not to say that there will be a sea-change in the Fed’s stance, but enough of a shift to encourage thoughts of an earlier-than-expected first Fed rate hike, and possibly cause a bit more selling pressure at the front end of the yield curve and dollar strength”.
“We also think that the chances of an April 2015 rate hike remain good, with the economy picking up pace in recent months, and leaving the housing-related and weather weakness of 1H2014 behind”.
“Whilst it is tempting to think that this may result in an eventual and perhaps sharp rise in longer dated bond yields, evidence so far this year is building that the economy continues to need low bond yields in order to make progress, and as such, any sell offs are likely to be self-defeating and short-lived”.