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Yellen's testimony before Senate

ResponsiblyIrresponsible
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2/24/2015 9:14:04 AM
Posted: 1 year ago
http://blogs.wsj.com...

These are always interesting, if infuriating, in the sense that it's always fun to hear what the GOP Congress knows--or doesn't know--about monetary policy, which obviously isn't much.
~ResponsiblyIrresponsible

DDO's Economics Messiah
ResponsiblyIrresponsible
Posts: 12,398
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2/24/2015 11:22:05 AM
Posted: 1 year ago
I only got to watch the first hour or so, but here's a brief synopsis for anyone who cares:

-The Fed's optimism over the growth outlook continues to eclipse their concern that falling energy prices will continue to push inflation downward in the coming months

-They seem to downplay to some degree falling Treasury break-evens, which they describe as "inflation compensation" as opposed to "inflation expectations," moving from past language describing them as having "declined significantly" to simply "declined." This sounds rather minor, but markets tend to cling to every word out the Fed Chair's mouth, and the increasing focused on survey-based measures of inflation expectations--in light of developments in Treasury yields, such as declining risk premia which may mask the degree to which fundamentals bear on yields--which have been relatively stable indicates that, clearly, they aren't much concerned about the divide between SEP and market-implied expectations of the rate path.

-Yellen, as expected, spoke out rather aggressively against the FRAT Act, which would compel it to conduct policy in accordance with a Taylor-type objective function, and the "Audit the Fed" proposal.

-I'll go on the record now, and say mark my words, that the pledge to be "patient" is coming out in March. Yellen already tried to massage the message the language--i,e, "changing the forward guidance need not signify an impending change in policy [though it likely does]"--and I think it would only be consistent with their past communication to remove it sooner rather than later.

So, my prediction as of now:

-March policy statement: "Patience" pledge is removed. We may see something to the effect of "the Committee believes that we can begin to normalize policy at a measured pace"--or, because Yellen doesn't exactly want to promise a quarter percent hike at each meeting, we may see a "moderated" pace or something to that degree. Or, maybe they'll just substitute in some vague "data dependency" stuff and follow Rick Mishkin, who thinks we ought to move at about 50 to 75 basis points at a time.

-April policy statement: Same thing

-June: I can't envision this not being the date of liftoff. Expect about a 25 basis point move--or even a 50 or so basis point jolt, followed by smaller, more inconsequential movements. In other words, you'd better refinance now!

/endrant
~ResponsiblyIrresponsible

DDO's Economics Messiah