11 Feb 2016
Yellen stuck largely to the script – Deutsche Bank
Research Team at Deutsche Bank, notes that Yellen stuck largely to the script in acknowledging market concerns emanating from tightening financial conditions, while at the same time refusing to fully close any doors still open to the Fed later this year.
Key Quotes
“That said the overall tone was certainly of a dovish leaning. Much was made of the passage suggesting that ‘financial conditions in the US have recently become less supportive of growth, with declines in broad based measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar’. Yellen said that should these developments prove to be persistent then they ‘could weigh on the outlook for economic activity and the labour market’.
On the inflation front, Yellen made reference to the fact that the ‘committee expects inflation to remain low in the near term’ but again made reference to the belief that many of these factors remain transitory. There was a focus on China with the Fed Chair acknowledging that ‘intensified uncertainty about China’s exchange rate policy and the prospects for its economy’ had played a role in exacerbating global growth concerns as well as a role in the collapse of oil prices. She highlighted that this could cause ‘financial stresses in commodity-exporting economies’ and for ‘commodity-producing firms in many countries’ which would impact foreign activity and demand for US exports.
A big part of the Q&A was the focus on how downside risks should be responded to through policy action. Yellen opined that ‘we’ve not seen shifts that seem significant enough to have driven the sharp moves we’ve seen in markets’ but did acknowledge that the developments warrant close watching. Yellen was careful to suggest that she would not jump to any premature conclusions, while also noting that ‘I do not expect that the FOMC is going to be soon in a situation where it’s necessary to cut rates’. Fed Funds contracts closed fairly unchanged by the end of play with the probability a hike this year still hovering around 30%.”
Key Quotes
“That said the overall tone was certainly of a dovish leaning. Much was made of the passage suggesting that ‘financial conditions in the US have recently become less supportive of growth, with declines in broad based measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar’. Yellen said that should these developments prove to be persistent then they ‘could weigh on the outlook for economic activity and the labour market’.
On the inflation front, Yellen made reference to the fact that the ‘committee expects inflation to remain low in the near term’ but again made reference to the belief that many of these factors remain transitory. There was a focus on China with the Fed Chair acknowledging that ‘intensified uncertainty about China’s exchange rate policy and the prospects for its economy’ had played a role in exacerbating global growth concerns as well as a role in the collapse of oil prices. She highlighted that this could cause ‘financial stresses in commodity-exporting economies’ and for ‘commodity-producing firms in many countries’ which would impact foreign activity and demand for US exports.
A big part of the Q&A was the focus on how downside risks should be responded to through policy action. Yellen opined that ‘we’ve not seen shifts that seem significant enough to have driven the sharp moves we’ve seen in markets’ but did acknowledge that the developments warrant close watching. Yellen was careful to suggest that she would not jump to any premature conclusions, while also noting that ‘I do not expect that the FOMC is going to be soon in a situation where it’s necessary to cut rates’. Fed Funds contracts closed fairly unchanged by the end of play with the probability a hike this year still hovering around 30%.”