Professor Yellen gets a RED D for this press conference. It was an effort in obfuscation it would deserve an A+ but Chair Yellen has been the biggest promoter of the Fed providing transparency and clarity to its policy decisions. Even Steve Liesman was critical of the Yellen for failing to answer his question on inflation and the Fed’s tolerance for allowing the PCE to rise above the 2 percent threshold. Several questions from reporters were follow-ups from previously asked questions that were not answered. Greg Ip from the ECONOMIST asked a question about financial stability and Yellen danced around as if she was a student of Mario Draghi. Again, another journalist had to repeat the question. The best direct question was from a woman who asked Chair Yellen about the expectation for wage growth to outpace inflation. Yellen admitted that she was waiting for households to get a gain in real take-home pay. Wages could grow at a more rapid pace then inflation but if inflation were rising faster than wages she would worry about economic growth.
Following up from last night’s Notes from Underground, the FOMC statement left forward guidance in place. The considerable time language was left in the release: “The Committee continues to anticipate, based on it assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run before the Committee’s 2 percent longer-run goal,and provided that longer-term inflation expectations remain well anchored.” So, where the Bank of England escaped from the prison of forward guidance, the Fed remains tied to the mast of certainty. It is amazing that Chair Yellen repeatedly states that there is great UNCERTAINTY in the beloved DOT PLOTS, but still holds fast to the certainty of forward guidance. For those who believe I am being unduly critical of the FED Chair, I turn to the markets’ response to the FOMC Statement and most certainly the press conference;
SPOOS: UP; GOLD: UP; BONDS: UP; and the CURRENCIES: UP. It appears that all investors were cheered by the Yellen press conference. More importantly, the response from the yield curves was very perplexing. The U.K. 2/10 yield curve flattened dramatically after Governor Carney raised the idea of rates rising faster than market forecasts. Yellen did the exact opposite and the yield curves in the U.S. flattened, not dramatically, but still the end of the day settlement was flatter by three basis points at 213.75. The markets all perceived something positive in Yellen’s answers. Oh well, on to crushing volatility.
***A last point on the press conference. The final question asked of Chair Yellen was about the FED promoting an early exit fee of bond fund redemptions. Yellen made it clear that she was NOT AWARE of any discussion of this issue and besides it is the PURVIEW OF THE SEC. It seems that the FT story yesterday caught the attention of many market participants and was widely panned. The issue of an exit fee for early redemptions was the clearest statement from the Fed Chair.
***Question to Dallas Fed President Richard Fisher: Why was the vote on policy unanimous? Fisher has made a great deal of inter-meeting noise about the Fed’s policy being too loose and possibly causing financial instability because of mispriced risk. When I look at the FOMC statement of those voting for the proscribed monetary policy, there is the name, Richard W. Fisher. Well President Fisher, I guess the facts must have changed from three weeks ago. Yes, inflation was higher than projected. Consensus is the hiding place of cowards.