11 Feb 2016
US: Yellen Testimony to Congress was neutral / dovish - ING
Rob Carnell, Chief International Economist at ING, notes that Yellen retains an open mind on the need for further tightening, though with a heavy skew of risks to the downside, and was defensive about the December rate hike.
Key Quotes
“The mercifully short prepared statement of Fed Chair Yellen to the House Committee on Financial Services did not contain much that was new from earlier speeches, statements or minutes.
To the extent that any new material was used, this was mainly an expansion of the risks from softer overseas demand, with China explicitly mentioned, and also from financial market tightening (stronger USD, higher yields on riskier assets and lower equity prices, offset to some extent by lower bond yields and oil prices).
The testimony retained the text about the possibility that rates might have to be increased at a faster than anticipated rate if growth and inflation were stronger than expected. And the initial response to this was for some dollar strength, as a more worried Fed might have been expected to drop this text. This did not last.
However, this upside scenario is sounding rather implausible right now. We see the continued inclusion of this text as an attempt to portray an open mind about the recent activity slowdown, and to avoid presenting a self-fulfilling picture of gloom at the Fed.
There was also a somewhat defensive paragraph justifying the December rate hike, though this was, perhaps surprisingly, not a big issue in the ensuing question session.
The remaining questions following the testimony took the usual form: Concern about debt; why the Fed does not do more to lower unemployment; how about a monetary rule? Etc. And though many of these questions did little to add to our stock of knowledge of the Fed’s stance on the Fed’s monetary policy, it did elicit some slightly more dovish sounding answers from Yellen which brought the market back to more neutral tone by the end. A March hike looks definitely off the table. A June hike is still possible. We recently shifted our forecast to one hike in 3Q16, and feel quite comfortable about this following this testimony. We repeat the process at the Senate today.”
Key Quotes
“The mercifully short prepared statement of Fed Chair Yellen to the House Committee on Financial Services did not contain much that was new from earlier speeches, statements or minutes.
To the extent that any new material was used, this was mainly an expansion of the risks from softer overseas demand, with China explicitly mentioned, and also from financial market tightening (stronger USD, higher yields on riskier assets and lower equity prices, offset to some extent by lower bond yields and oil prices).
The testimony retained the text about the possibility that rates might have to be increased at a faster than anticipated rate if growth and inflation were stronger than expected. And the initial response to this was for some dollar strength, as a more worried Fed might have been expected to drop this text. This did not last.
However, this upside scenario is sounding rather implausible right now. We see the continued inclusion of this text as an attempt to portray an open mind about the recent activity slowdown, and to avoid presenting a self-fulfilling picture of gloom at the Fed.
There was also a somewhat defensive paragraph justifying the December rate hike, though this was, perhaps surprisingly, not a big issue in the ensuing question session.
The remaining questions following the testimony took the usual form: Concern about debt; why the Fed does not do more to lower unemployment; how about a monetary rule? Etc. And though many of these questions did little to add to our stock of knowledge of the Fed’s stance on the Fed’s monetary policy, it did elicit some slightly more dovish sounding answers from Yellen which brought the market back to more neutral tone by the end. A March hike looks definitely off the table. A June hike is still possible. We recently shifted our forecast to one hike in 3Q16, and feel quite comfortable about this following this testimony. We repeat the process at the Senate today.”