Fed Chair Yellen's Testimony: No major revelations - RBS
Research Team at RBS, suggests that there were no major revelations in Fed Chair’s testimony on “The Economic Outlook” before the Joint Economic Committee.
Key Quotes
“Ms Yellen’s comments were supportive of a hike at the December 14 FOMC meeting, although she stopped short of promising one. Instead, in her prepared remarks Chair Yellen reiterated much of the key parts of the November FOMC statement: “the Committee judged that the case for an increase in the target range had continued to strengthen and that such an increase could well become appropriate relatively soon if incoming data provide some further evidence of continued progress toward the Committee’s objectives.”
“In Q&A, the chair offered a bit more timely an assessment, by noting that “The evidence we’ve seen since we met in November is consistent with our expectation of strengthening growth and an improving labor market. I do think the economy is making very good progress toward our goals”, and that a rate increase “could well become appropriate relatively soon.”
“Meanwhile, the chair did not sound overly anxious about falling behind the curve, repeating the Fed mantra that the economy has had a bit more "room to run".”
“Even so, the chair added her standard usual caveats by warning about policy lags: "...the Committee must remain forward looking in setting monetary policy. Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the Committee’s longerrun policy goals. Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risktaking and ultimately undermine financial stability." Nevertheless, she once again stressed the pace of rate hikes will be gradual and determined by the outlook.”
“Whether the Fed hikes in December will depend on the data and market conditions between now and the FOMC meeting, and the risk that the Fed believes increased uncertainty poses to the US economy.”
“There were no references about fiscal policy in Ms. Yellen’s prepared remarks. However, she was asked for her views in the Q&A portion of the testimony. She didn’t provide too much insight on the topic, nor did she seem anxious to endorse a certain approach. Instead, she urged lawmakers to consider whether a potential stimulus package would encourage productivity growth.”
“Chair Yellen did warn that a large stimulus package could have adverse effects on inflation, and that the rise in the Treasury yields since the November election “was consistent with that point of view”. In the end, Chair Yellen said the Fed “will be watching the decisions that Congress makes and updating our economic outlook as the policy outlook becomes clearer.”
“Chair Yellen was also asked whether she had any intention to resign in the wake of the outcome of the election. Her response was: “I was confirmed by the Senate to a four year term, which ends at the end of January of 2018, and it is fully my intention to serve out that term”.”