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Key Takeaways From Yellen’s Testimony

| February 25, 2015
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Key Takeaways From Yellen’s Testimony
 
Takeaway #1:  “Patient” will likely be removed from the March FOMC Statement
The reason I know this is because Yellen specifically said in her prepared comments yesterday that once “forward guidance” was changed (meaning the removal of “patient” from the statement) that it didn’t mean a rate hike was definitely coming in the next two meetings. That tells me the word will be removed and she’s trying to soften the blow.  Takeaway:  “Patient” is probably out of the March meeting and a June rate hike is still very possible. 
 
Takeaway #2:  The Fed view of the economy is pretty positive.
Fed Chair Yellen citied several economic positives:  Improvement in the jobs market, rising consumer spending, and lower oil, which will be a big positive force on the economy.  Takeaway:  The economy is strong enough to warrant a hike soon, it’s just a question of how “sure” the Fed wants to be about the recovery.
 
Takeaway #3:  Yellen downplayed international risks
She mentioned potential international headwinds (the diverging policy gap between the US and the rest of the world, and China’s recent slowing growth), but qualified those comments by saying recent monetary accommodation (QE by the ECB, BOJ, stimulus by the PBOC) could result in stronger international growth then markets are currently considering.  Takeaway:  Central banks aggressively easing policy isn’t going to keep the Fed from raising rates. 
 
Takeaway #4:  Yellen Downplayed Low Inflation
She again qualified low inflation as being largely the result of lower oil and commodity prices, and the stronger US dollar. She did not sound too concerned about low inflation.  Takeaway:  The Fed is looking past these low inflation statistics, and they aren’t going to make the Fed delay rate hikes.
 
Yellen and the FOMC continue to pave the road towards a rate hike as early as June, and as late as September.  That’s either 3 or 6 months away!  

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