Goldman's 5 Key Questions For Janet Yellen

Tyler Durden's picture

Fed Chair Janet Yellen will deliver her inaugural monetary policy testimony on February 11 and 13. Her prepared remarks will be released at 8:30amET and the testimony will begin at 10amET. Goldman, unlike the market of the last 3 days, believes that Ms. Yellen is likely to "stick to the script" in her first public remarks since taking over from Bernanke but they look for additional color on the following issues: (1) the recent patch of softer data; (2) the Fed's thinking on EM weakness; (3) the hurdle for stopping the taper; (4) the amount of slack in the labor market; and (5) the future of forward guidance.



Via Goldman Sachs,

1. How much does Ms. Yellen worry about the softer data?

The US economic data have disappointed since the start of the year. Following last week's weaker-than-expected employment and ISM manufacturing reports, our US-MAP surprise index has fallen further into negative territory and our current activity indicator (CAI) has slowed from an average of 3.1% in October/November to 2.3% in December/January. But, given a number of special factors, we think this is a pothole after a much stronger-than-expected 2013H2, not the beginning of yet another swoon. More broadly, our confidence in the fundamental drivers of stronger US growth remains high and we continue to expect growth of about 3% this year. We will take note of the degree to which Ms. Yellen views the recent patch of softer data as transitory. A new set of formal economic projections is not due until the March FOMC meeting, and we expect Ms. Yellen's message to remain broadly consistent with the committee's December forecast of 3% growth in 2014.

2. How are Fed officials thinking about the EM weakness?

The recent turbulence in emerging economies and markets raises two questions for Fed officials. The first is whether the turmoil is related to the Fed's tapering. As our EM Markets team has noted, we think that the EM difficulties reflect a need for significant adjustments in a range of countries in an environment of higher global real interest rates and lower commodity prices. While rising US rates--and therefore to some extent Fed policy--were a catalyst, the fundamental source of pressure lies in the domestic and external imbalances within EMs that need correction. The second question is the extent to which the EM turmoil might spill over into the United States. Given the limited exposure of the United States to the EM world, we are not too worried about adverse spillovers. Emerging economies as a group only account for a relatively small share of US exports, banking claims, and corporate profits, and the numbers decline further if we focus on the most troubled EM countries. We would expect Ms. Yellen to take a similar view but will look out for any color on these issues.

3. What is the hurdle for stopping the taper?

We believe that the hurdle for a pause in the tapering process is still fairly high. While the Committee has taken pains to note that the path of asset purchases is “not on a preset course,” a substantial change in the outlook would likely be required for the Fed to either pause or accelerate the gradual pace of tapering started in December. We think this relatively high bar has not been met. This is partly because of our interpretation of the recent dataflow discussed above and partly because, at this point, Fed officials appear to have little confidence that they can use small moves in the QE pace to fine-tune their monetary impulse. After the events of last summer, they are probably particularly reluctant to signal an increase in the pace of tapering, now that the program is on a natural course toward expiration well before the point at which the FOMC expects to hike the funds rate. The hurdle for interrupting the tapering process in response to weaker growth or lower inflation might be a bit lower, but we believe that the surprise would still need to be more meaningful than what we have seen in recent weeks. We would expect Ms. Yellen to deliver a similar message.

4. How much slack does the economy have?

One of the key questions for the US economy is how much slack remains in the labor market. The size of the employment gap appears particularly uncertain at present because it is unclear to what extent the unemployment rate is representative of the amount of slack in the labor market. On the one hand, the unemployment rate might overstate the amount of slack in the labor market because the short-term unemployment rate has already fallen significantly. On the other hand, the unemployment rate might understate the employment gap because the weakness in labor force participation is partly cyclical. While the uncertainty is significant, we see the evidence as more consistent with the latter view. Fed commentary on this issue suggests that there is a range of opinions on the committee. Former Chairman Bernanke was generally non-committal, highlighting the importance of both cyclical and structural factors (such as demographics). We would expect Ms. Yellen to indicate that a significant amount of slack remains despite the drop in the headline unemployment rate, and that more and broader labor market improvement is needed before the FOMC will consider an increase in short-term interest rates.

5. What will happen to forward guidance?

Finally, we will take particular note of any remarks regarding potential changes to the forward guidance. The most immediate question is how Fed officials think about guidance for the first rate hike now that the unemployment rate is very close to its threshold. A cosmetic adjustment to the guidance appears needed once the unemployment rate drops below 6.5%. But we would expect Fed officials to rely mainly on qualitative guidance in the near term given the apparent lack of support in the December meeting minutes for more forceful enhancements, such as reducing the unemployment threshold to 6.0%.

The other important question is whether the committee will provide additional guidance for the pace of policy normalization once the first rate hike occurs. The FOMC statement currently states that “when the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.” Ms. Yellen said in March 2013 that the committee’s current forward guidance is “not complete” because it “has not specified exactly how it intends to vary the federal funds rate after liftoff from the effective lower bound.” Ms. Yellen concluded in April 2013 that “as the time of the first increase in the federal funds rate moves closer… it will be increasingly important for the Committee to clearly communicate about how the federal funds rate target will be adjusted.”

We argued last week that an attractive approach to providing additional forward guidance in the present circumstances might be to stress the role of nominal wage growth for Fed policy. The uncertainty around the extent of labor market slack makes agreement on quantitative guidance difficult to attain. But we showed that Fed officials can, in principle, mitigate this problem by responding less to the poorly measured employment gap and more to nominal wage growth. This is true even if Fed officials care greatly about employment; the reason is that wage inflation acts as a cross check for (imprecisely measured) labor market slack. While such a policy is not perfect—as the link between wages and slack, too, is subject to uncertainty—the scope for error is lowered significantly. Ms. Yellen may therefore well indicate that wage inflation is one of the key markers for broad labor market improvement and, therefore, the committee's thinking about the funds rate path.

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DoChenRollingBearing's picture



"Will Janet Yellen grow a beard in homage to the previous Fed Chair?"  John W. Garibald thinks NOT!  What do you think?

"Review of American Hard Assets: Jan/Feb 2014"

Atomizer's picture

Is this a photoshop picture? Looks like someone bruised her face. Referring to GS storyline photo.

TruthInSunshine's picture

Zero Hedge has a bi-polar behavioral pattern, as the only time it's not slamming the alleged "thoughts, writings, ideas & musings" of too-big-to-fail "banks" such as Goldman Sachs, it is when it's parroting their alleged "thoughts, writings, ideas & musings" in copy.

Soul Glow's picture

My question to Ol' Yeller:

Is gold money?

I just want to see her lie.

Atomizer's picture

The answer will become a scripted reply used from our prior Federal Reserve Chairwoman.

Oh regional Indian's picture

Methinks there are no "attractive" options with Ja Net Yelling. 

And to TIS's point above, truly, WTF time.

Perhaps it's time to fade this place. Too bad because it has been "THE" goto place for me for the last 4 years (almost).

C'mon ZH, spill the beans, are you a GS shop in dis-guise? Is ABC THE ABC?

Been here long enough tospot a trend and the diplomat posts sounded like canary's to me.

Say it ain't so...


Oracle of Kypseli's picture

Here is one I would ask. If you were to set aside the unemployment rate gymnastics and check a few real numbers like

  1. Total US population
  2. Total working age adults
  3. Percentage of working people v. total US population or v. total working age adults

You will find that not only there is no labor improvement, there is actually grave labor deterioration which can only lead to negative growth.

Do you not agree? Please explain  

GetZeeGold's picture




Goldman's 5 Key Questions For Janet Yellen


If they followed standard protocols....she should have received the answers yesterday.

HyBrasilian's picture

#6 ~ What is the air speed velocity of an unladen swallow?

#7 ~ do you use a 3 bladed or 4 bladed razor to shave your beard?

kralizec's picture

Winner, winner chicken dinner!

(And she'll still stumble!)

Soul Glow's picture

Do what is asked.

Ye old party line.

JLee2027's picture

Scripted questions, scripted answers, all propogada. As bad as the old Soviet Union.

We pretend to work, and they pretend to pay us

Doña K's picture

<<<<Is gold money?>>>

She may say "I don't know yet"

Notice however that PM's have not been raided since Ben Shalom left? I think she is holding the raids until later so she does not get asked.

The greatest question by congress would be:

Can you explain a possibility in which someone would dump billions of dollars worth of futures contracts in the market during the least liquid time of the day where most people are in the arms of Morpheus? And yes that only happens with gold futures.

Debugas's picture

first define what is money

disabledvet's picture

more Wall Street that's pretty easy. "what's my liquidity position...and am i about to stopped out?"

Morning Lab Rats!

Oracle of Kypseli's picture

Maybe she can define the difference between currency and money, (if any) and is it interchangeably the same?

Atomizer's picture

reminded me of of the scene from the Grifters movie. A towel of oranges.

Leveraged Algorithm's picture


The.Harmless.Who's picture




She's just another follower of the Talmud... front-runner to Zionism, AIPAC, Banksters and the rest......



It is one hell of club, and unless you wish to serve the Zionist cabal  - You're NOT invited! 


Here's a couple of quotes (of MANY) from the talmud that are apt for the Greenspans, Yellens, Bernankes, Fischers, Blankfeins, Goldsteins, Dimons, Cohens and Icahns (all confirmed zionists / AIPAC supporters): 


"It is permissible to cheat a gentile in court." - She, like her predecessors, will lie today


"If a gentile robs a [Zionist] Jew, he must pay him back.  But whatever a [Zionist] Jew robs from a gentile, the [Zionist] Jew may keep.  Some robbery of gentiles is disguised as confiscation of an unpaid debt”"  - Yes, you read that right!!!!


"If a gentile loses something, a [Zionist] Jew may keep it, even if he knows the owner." - The American people and the wider world, specifically the middle classes - what you've "lost" is gone. 



For the "haters" - Please wake up and note: Anti-Zionism isn't Anti-Semetism.




Kirk2NCC1701's picture

I noticed that too.  Did she get Bitch-slapped by the GS guy who's "doing God's work"?

knukles's picture

That was from a rough session on the "Hill"

spanish inquisition's picture

It's possible, she had the idea that she was allowed to have ideas.

Anyway, in a variation to the old joke, they must of impressed on her that there are no 2 black eyes in her current position.

vie's picture

Indeed, looks like someone punched her in the face.

Mr Pink's picture

After you are done puking you might want to check out my future ex wife Lauren Lyster

e_goldstein's picture

Good god, what happened to her cohost's face?

knukles's picture

What co-host?
She was soooo much better on RT, perched up on those high chairs with all that leg just oozing out of her teeny tiny skirts all the way down to the tips of her 6" stiletto heels.

Now she just looks like another dumb blonde.

Blano's picture

You're 100% correct, but I'd still take her in a heartbeat.

vie's picture

He must've had a visit from GS.

Four chan's picture

quiting is the new working.

knukles's picture

Propa-fucking-ganda Deluxe

People are not "Just Quitting"
They're being fired, terminated, let go, sayonaryaed, vamoosed, gu'byed, never darken my fucking door again, don't let it hit you on the ass on your way out-ed.
Then when they can't get jobs, they're counted...

.... counted as having fallen off the unemployment rolls for propaganda purposes, only, citing that they've now, according to WaPo and a couple fucking idiot congress critters, found Nirvana to never need to work again and have time for higher intellectual pursuits Fuck Me Up the Arse Sideways to the Elbow without KY Jelly, and I even get to foot the fucking bill!

Am I the last one working in this place, huh?
Am I?
What the fuck is going on, for Christ's Sake?

Blano's picture

Nice pair, there.

Not too big, not too small.  Just right.

Mister Kitty's picture

Yellen is a money printer.  Plain and simple.  Bitches.

Grande Tetons's picture

6. How big is your penis? 

Agent P's picture

A: "If you're challenging me, we can compare, but I'm only going to pull out what I need to win."

fxrxexexdxoxmx's picture

Real men have no need to pull anything, gravity works for those of us who have the mass.

Leveraged Algorithm's picture


Johnny Cocknballs's picture

I'd venture to say that the employment rate is largely designed to obfuscate the real labor gap so they can begin tapering and edging rates up.


I predict a riot... ooh ooh a riot....


ILikeBoats's picture

6. Does she call Rothschild?  or the representative of the Warburg banking family, first thing in the morning?

gwar5's picture

Here's some questions for Yellen:

1. Are you going to wait until EMs are in flames before you ramp up QE?

2. How much are you going to ramp QE?

3. What's it like to be the biggest enemy on the planet to your fellow human beings?

4. Why shouldn't we put all central bankers in jail?

5. Are you a lesbian? 

Soul Glow's picture

The first four questions are good.  

But I don't care whose strap on she is sucking, in fact, I don't want to know.

algol_dog's picture

Good video here ... Dot com 2.0 - This social media phenomenon is going to crash ...

denverdolomte's picture

Yup. Social media is going to become void soon enough, in all reality I love asking people what does Facebook actually produce to you as a consumer that is worth the Billions of dollars they generate each and every year. BLANK STARES.

Colonel Klink's picture

He'll keep lying because he's a fart smeller that Yellen.

syntaxterror's picture

6. Do you understand who your bosses are? Do you know what happenened to people that didn't obey them? Do you need to be reminded? Are you sure?