Janet Yellen Has A Valentine For You

As noted earlier this morning, Valentine’s Day is all about Janet Yellen on Capitol Hill.

Although SocGen’s incorrigible bear Albert Edwards speculated last week on the possibility that the vaunted Fed Chair could “brandish a machine gun” and “massacre” markets (an Al Capone reference) with a hawkish message, the chances of that seem pretty slim.

After all, we know who’s really in the driver’s seat here and it’s not the committee. So who is in charge, you ask? I’ll give you two visual hints.

Hint 1:

hikes1

Hint 2:

dollar

And with that, I’ll turn it over to Bloomberg’s Richard Breslow for the full treatment.

Via Bloomberg’s Richard Breslow

With Chair Yellen set to testify today before the Senate Banking Committee, it’s amazing to me how a debate can continue to rage about how hawkish she may or may not be. That’s neither a testament to the effectiveness of the Fed’s communication strategy nor how effectively their messaging is being processed.

  • If you take the weight of everything they’ve said, it would indeed be a shock if she actually does make an attempt to put March back on the table. And frankly, whatever is said about June and beyond, is only just another forecast, to be priced by the market another day
  • I thought it was a mistake that the FOMC’s January minutes left March out of the conversation. But they did. And little has changed since then to make the chances of an about-face obvious
  • Core PCE hasn’t seen the 2% level since 2012. And let’s face it, the wage numbers in the latest non-farm payrolls were decidedly underwhelming. They were willing to raise last December, even short of their mandates, but seem likely to only take that so far, so fast.
  • Minneapolis Fed President Kashkari laid out the case for waiting to see inflation actually at target before pulling the trigger again. I got the sense he probably won’t be one of the one’s declaring “mission accomplished” the first time it happens. But you never know
  • More interestingly, and I thought ominously, Vice Chairman Fischer said, “At the moment we are going strictly according to what we see as our responsibility according to law.” The use of the word “law” rather than “mandate” struck me as purposely done to acknowledge this is a board that feels under siege. He was likely giving his boss cover for when she faces what very well could be a hostile congress on the subject of Fed independence
  • Made all the more problematic with now three governor vacancies. Markets were sanguine about Governor Tarullo resigning, but are said to have dropped when Michael Flynn stepped down. I think they have it the wrong way around
  • On the subject of the balance sheet, nothing is imminent. It’s a big deal and re-investment policy won’t change without a lot of debate, a slew of academic papers and, yes, taking “advice” from the banks. Somethings don’t change
  • I’m very sympathetic to the notion that the Fed may eventually do more than is currently priced in. But sooner rather than later doesn’t convincingly imply March.
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