Don’t Expect Much From Yellen’s Speech Today
By Tyler Durden
When previewing today’s Janet Yellen speech, we first focus on BofA’s chief economist Ethan Harris who looks not so much at today’s event as at recent appearances by Yellen and various Fed governors and president, and is clearly getting more disenchanted by the Fed’s ongoing flip-flopping, because as he says “it is fair to say that many clients are a bit confused and frustrated with Fed communication.”He continues:
The Fed seems to be constantly changing its focus from one meeting to the next. They seem to regularly promise hikes, only to back off at the last second. Fed statements often seem stale, reflecting where the economy and markets were a couple months ago, rather than current conditions. They say their 2% inflation target is not a ceiling, and yet they only plan to bring inflation back to 2%. They argue that the risks to the outlook are very asymmetric—with rates near zero they have limited anti-recession ammunition—and yet their inflation target is symmetric. This is policy transparency?
In light of the above one could say that the June rate hike odds are an efficient measure of the Fed’s overall credibility in recent months.
As we noted earlier, Yellen is the last scheduled Fed official to speak publicly before the quiet period Fed officials typically observe the week before a Federal Open Market Committee meeting. She’ll give remarks at the World Affairs Council in Philadelphia at 12:30 p.m. local time, then will attend a roundtable discussion at the West Philadelphia Skills Initiative starting at 2 p.m. The appearances give her a chance to talk July back onto the table by signaling that the June data may have been a blip. Alternatively, she could push expectations back further by emphasizing the negative developments.
Yellen could note that the May report does not necessarily suggest a more permanent gloom for the labor market, where unemployment at 4.7% is at its lowest level since the beginning of the recession. On rates, she could repeat her line from a week-and-a-half ago that a rise could be appropriate “probably in the coming months.” Millan Mulraine, deputy chief economist at TD Securities in New York, said he expects the Fed Chair to reiterate a “relatively upbeat outlook on growth and inflation, while continuing to emphasize the need for caution.”
While likely keeping a July rate hike on the table, Yellen “will emphasize that any decision to act will be highly data-dependent,” he wrote in a note to clients.
Another take of what to expect in today’s key speech comes from DB’s Jim Reid, who says that the weak jobs report “makes for an interesting appearance from Yellen as surely she can’t confidently signal a summer hike now? However she was relatively hawkish when she spoke 10 days ago at Harvard so will one number knock her back to her normal dovish leanings. The market has certainly voiced its opinion. We’ve had a big round trip in June and July hike expectations over the last month. Only 4 weeks ago the probabilities were …read more
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