Trade Alerts

Testimony

February 25, 2015
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by Larry Levin

 
Now that the Greece crisis is solved (HA!), the world has turned their attention (and HFT black boxes) to the long awaited address of the Senate Banking Committee from the Fed Chairwoman, Janet Yellen. What will she say? Almost more importantly, what is the tone of her words? These statements and subsequent Q&A are so nuanced, it borders on insanity.

As related to policy:

*YELLEN: `PATIENT’ MEANS LIFTOFF UNLIKELY FOR COUPLE OF MEETINGS
*YELLEN: GUIDANCE CHANGE TO MEAN LIFTOFF POSSIBLE AT ANY MEETING
*YELLEN: FED WILL RAISE WHEN `REASONABLY CONFIDENT’ ON INFLATION
*YELLEN: FED WILL CHANGE FORWARD GUIDANCE BEFORE RAISING RATES
*YELLEN SAYS FED WILL REDUCE BALANCE SHEET GRADUALLY
*YELLEN: NEW GUIDANCE NOT NECESSARILY LIFTOFF IN COUPLE MEETINGS
*YELLEN: BALANCE SHEET REDUCTION MAINLY VIA HALTING REINVESTMENT

As related to the macros:

*YELLEN SAYS GDP STRONG ENOUGH TO GRADUALLY LOWER JOBLESS RATE
*YELLEN: LOWER OIL PRICES SIGNIFICANT NET PLUS FOR U.S. ECONOMY
*YELLEN SAYS FOREIGN DEVELOPMENTS COULD POSE RISKS TO U.S.
*YELLEN SAYS LOWER BOND YIELDS PARTLY REFLECT WEAKNESS OVERSEAS
*YELLEN SAYS CHINA COULD SLOW MORE AND EURO AREA FACES RISKS
*YELLEN SAYS RISKS FACING FOREIGN OUTLOOK NOT JUST ON DOWNSIDE
*YELLEN SAYS INFLATION TO FALL FURTHER IN NEAR TERM
*YELLEN SAYS IMPROVING JOBS AND FADING OIL IMPACT TO LIFT PRICES

Quincy Krosby, market strategist at Prudential Financial, said the market reaction to Yellen’s testimony indicates that it was perceived as dovish.

“The 10-year yields fell, the dollar gave up gains and stocks rose, even though those moves were not huge. At this points, just as the Fed is data-dependent, markets are data-dependent too. Investors will be watching every data point carefully,” Krosby said.

“Today’s Janet Yellen is the same Yellen who in 1994 warned Alan Greenspan to be careful about raising rates too soon and too fast. The Fed needs to see more evidence that the economy is truly on a viable trajectory before beginning to normalize interest rates. They would not want to be in a position where they would have to cut rates shortly after the first hike,” she said.”

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