Goldman Explains What Yellen Really Said: "Hawkish Shift"

Tyler Durden's picture

Who best to summarize what Yellen just said (aside from Bernanke of course, however he will demand at least $250,000/hour for his profound insight), than the bank which actually runs the NY Fed: Goldman Sachs. So without further ado, here is Goldman's Jan Hatzius on what Yellen really said.

BOTTOM LINE: The Q&A of Yellen's semi-annual monetary policy testimony contained a few bits of interesting information, including a slightly hawkish shift in her description of when FOMC participants think the first rate hike may occur.


1. Asked about the timing of the first rate hike, Yellen noted that "almost all" participants expected the first rate hike at some time in 2015, and that the median projection for the fed funds rate at the end of 2015 was "around 1%." Although simply describing the content of the Summary of Economic Projections (SEP), this language was slightly more hawkish than her response to a similar question in her May Joint Economic Committee testimony, in which she noted "most members believe that in 2015 or 2016 normalization would begin under their baseline outlook." (The June SEP dots indeed shifted up slightly relative to the March dots, although the number of participants projecting the first hike in 2015 actually increased from 2 to 3.)

2. Despite acknowledging improvement, Yellen generally continued to focus on the substantial degree of slack in the labor market, and highlighted wage growth failing to significantly outpace inflation.

3. Regarding downside risks, Yellen noted that "housing is a sector where we expected to see better recovery, but it's not quantitatively important enough to cause use to judge that it would hold back the recovery."

4. Chair Yellen did not appear supportive of proposed legislation that could require the Federal Reserve to follow a formulaic policy rule. We do not think such legislation has a significant prospect of becoming law.

5. Regarding the exit strategy, Yellen stated that she thinks of the fixed-rate reverse repo (RRP) facility as a "backup tool," consistent with the description of most participants' views in the June FOMC minutes. She noted financial stability concerns regarding the facility, but indicated that maintaining a wide spread between the interest rate paid on excess reserves and the RRP rate or maintaining per-counterparty or total usage limits on the facility could mitigate these concerns.

6. Yellen noted that she had a "strong preference" for using macroprudential tools to deal with any potential financial imbalances (as opposed to shifting the core stance of monetary policy), similar to her remarks on this issue in the past.

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Squid Viscous's picture

LOL, hilsenwrath, stat!

eclectic syncretist's picture

Yeah!  And Goldman made shitloads of profits backing Stolpers calls too.  WTF is up with that?

FL_Conservative's picture

The only "hawk" that comes out of Yellen's mouth preceeds a spit.

brockhardman's picture

What she really meant to say is "Hawkish Shit".

ilion's picture

One wonders why these ex-Goldman Sachs traders left the rigged commodities market and decided to launch an FX broker istead? Video here.

TheFourthStooge-ing's picture

Not to be confused with what Goldman is really doing: hawking shit.

slaughterer's picture

Hatzius speaks the opposite of what the Goldman prop desk does.   Operation "muppet massacre" is now pefectly set up. 

cougar_w's picture

The Chinese might take some exception to being called "muppets" on the other hand they are doomed anyway so it's no net loss.

Itchy and Scratchy's picture

Double LoL! Hawkish .............hahahahahah! Gud 1! LoL!

CrashisOptimistic's picture

My recall is the Fed chief testifies at a Senate committee, and then the next day at a House committee.

And usually whatever was said in the first day is walked back to nothingness in the second day.

TeethVillage88s's picture

Of course a few days ago Goldman Sachs (Gold-Fab Scrotums) warned that Congress was going to put new controls on the Fed and it was NOT Priced into the current stock market prices. Then you look up the Legislation and it only has 5% chance of getting passed and just went to committee on 7 July 2014.

SheepDog-One's picture

Rate hikes comin......pfft yea sure.

cougar_w's picture

I just don't see it. Unless they apply the new rates in some really narrow sense. So maybe rate hikes for Main Street, but not Wall Street.

That at least would fit the established pattern of scorched earth rape and pillage we've come to expect from these masters of the universe.

SheepDog-One's picture

Oh of course, WE are getting rates hiked up our ass, inflation etc, while Wall St still enjoys completely free money, as much as they want.

cougar_w's picture

For a while there I was worried that I had maybe misunderstood the workings of the universe. But now I see it really is BAU. We can all take consolation in knowing that the world really is static and predictable and that these masters of the universe will rule over us forever.  /s

Bossman1967's picture

lies lies and more lies. who are these people and why are they not in jail. we would be if we spent the peoples money in the way they are and our representation does nothing. are we a bunch of suckers or what????

i_call_you_my_base's picture

Right, housing isn't quantitatively important, which is why you stuffed $2 trillion into that market.

TeethVillage88s's picture

Yeah in May Yellen said we were missing our traditional Tailwind in Recession: Housing Recovery.

But that is what the Engineers picked for the Early 2000 Bubble.

SheepDog-One's picture

Right, because since the banksters got their real estate bad bets bailed out, they're quantitatively operating other swindles now.

NihilistZero's picture

Right, housing isn't quantitatively important, which is why you stuffed $2 trillion into that market.

They know Housing Bubble 2.0 is gonna burst so they have to diminish it's importance to the greater economy.  Seeing through the double speak, Yellen's statement should terrify housing bulls.

Keltner Channel Surf's picture

Yellen "more hawkish" is like saying Bardot at 23 was "more ugly" than she was at 22.

JustObserving's picture

Who cares a fuck about what someone says about fake, manipulated markets?  The markets will be manipulated higher in any case and gold and silver capped.

These market manipulations have been going on for many years now along with falsification of all economic statistics which has been going on since the early 80s.

Forget it, Jake. It's Chinatown.

cougar_w's picture

They have to say these things -- that they will punish themselves eventually -- to retain any shred of relevance, and to avoid a broad and undesired public outcry for vengeance against the 0.1%. Since they have to say them, the fact they are saying them is meaningless. They will simply say whatever they have to say to buy themselves a little more time, that's all. Any low-born criminal would do exactly the same thing as these silver-spoon johnnies are doing.

when it gets interesting is when things do not go their way, and the 0.1%-ers start to toss each other under the bus. Which they will, ere the end, because that also is their historic pattern. They do not love the power their segment of society has garnered, rather they love the power they each as individuals have garnered. If destroying some of "their own" means more power in fewer hands, well that sounds fine to them.

I'll predict they stand ready to annihilate each other, to the last sorry sack of shit. Because they think this is the same-ol-same-ol struggle among titans to divide up power, but it's not. The power they feed on is itself evaporating, like large fish in a mud hole they are about to be left high and dry. Their struggles will become last-gasp efforts and they will too late discover (because they are fundamentally a  bunch of stupid cunts) that they are doomed as a subspecies and as a result their kind will never again walk the earth.

SDShack's picture

Yep... in other words... Last Sociopath Standing.

hockeypuck777's picture

What a joke.  When I was young we would study balance sheets and income statements.  Now we just wait for the mumblings of oracles.

cougar_w's picture

Yeah but you can do your waiting down at the pub swilling beer, so don't tell me it's not an improvement.

TrustWho's picture

Ms. Yellen's performance in front of the nation today demonstrates the sad, sad state our bank cartel has created for the nation. Everything is complicated, chaotic, confusing and difficult. Senator Tom Coburn correctly summarized this sad state with "We are in a trap". People do not understand the economy runs on the margin and the problem dividing by zero (small numbers) creates for financial instruments. Raising interest rates from 0.15% to 0.3% is like raising rates from 3% to 6%. People will lose a lot of money.

How does Yellen go home and look her children/grandchildren in the eyes and tell them she loves them? I know she will point her finger at Congress and say it was their fault. I hope history will eviscerate her for the ZIRP/QE policy, the way she enabled a do-nothing Congress and her anti-austrian economic policy that all helped terminate a great power before its time. In the end, does fault matter?

luckylogger's picture

WTF is MACROPRUDENTIAL??????????????

oklaboy's picture

how about just saying "I haven't a clue' and move on.  The housing sector quote, "housing is a sector where we expected to see better recovery, but it's not quantitatively important enough to cause use to judge that it would hold back the recovery."  shows she is a complete moron.


not important enough? what planet does she come from.

sandhillexit's picture

THere is NO recovery in the US post-WWII without housing.  IF she wants to create something else it needs to be as "close to the ground" across the country as housing.  Highways, maybe.    Alternatives?  

Atomizer's picture

Goldman Sachs, ask the planted Obama skits we view.

Do you really think we believe your solvency claims? GS muppets have the table turned on themselves. 

monopoly's picture

"Hawkish shift". What a bunch of crap. I have been pounding the table here on Zero Hedge for over 4 years that they can NEVER increase interest rates without crashing the markets. It is that simple. Not gonna happen. No way. Nada. Nyet!!! 

Atomizer's picture

Fly over to Market watch  or Yahoo finance blogs. Depart ZH Forum. See you on the other side. 

Jackagain's picture

It's just another ploy to get PM's hammered while they & JPM try to short the metal into oblivion....just like they did yesterday. Of course China has to be loving this since

they're accumulating. It's almost like they want China to have enough gold to back a currency. Could dollar destruction be on their agenda?


1% at the end of 2015 would take 4 quarteres of 1/4% interest hikes, yet they are projecting a mid-2015 date for the start of interest rate hikes. 1/2% increments coming from 2 of their meetings would send 

Wall Street reeling...

moneybots's picture

"I have been pounding the table here on Zero Hedge for over 4 years that they can NEVER increase interest rates without crashing the markets."


I remember people saying the FED would never taper.  Some said they would do a token 10 or 15 billion, then ramp up to over 85 billion a month.

The FED is now down to 35 billion a month, down not 10 or 15 billion, but 50 billion.  The schedule is to end QE in October.

The FED has always increased interest rates during a cycle.  They raised the rate in the late 90's, before the Nasdaq crash.  They raised rates in the mid 00's, before the housing crash.  Regardless that they couldn't raise the rate without crashing the market, they have done it anyway.

Bernanke said the FED would not normalize rates in his life time.  He did not say the FED would not raise rates to some point below normal in his life time.

monopoly's picture

OK, normally I would agree with you moneybots, but this time, we have 18 trillion in debt that can never be paid back. A rise in interest rates by just 100 basis points would increase the interest needed to be paid out 10 fold. There is just no mathematical way that will work. Oh sure, a booming economy with a self sustaining recovery might help but do you really think that is about to happen? I stand by my conviction, no rate rise. And lets see how far this game of chicken goes before the market takes a real dump and this idiot Fed and Grandma have to reverse course. Lets just watch that one.

madbraz's picture

Fixed reverse repo is a sham and has no comparison to excess reserves.  You (primary dealers) get paid to park excess reserves with the FED, but you don't get collateral back to juice up speculation elsewhere.


Fixed reverse repo makes no sense - it's just a tool designed to help bankers get a hold of inordinate amounts of collateral that they don't want to buy.  How on Earth do you justify charging banks for securities lending (treasuries) and then paying banks to take the same collateral in "reverse repos"... am I not getting this right or is this downright idiotic and possibly criminal?

the grateful unemployed's picture

tough times for ms Y. the fed is god, not by her design, they were 100% monetary policy, 10% fiscal policy, and 0% foreign policy, now closer to 50% fiscal and 25% foreign policy. and if she doesn't like being GOD there are some people at G_O_l_Dman who handle that kind of work.

asking4it2k's picture

Wait until the FED raises interest rates and there is an interest rates spike. The US will default on the debt, and food stamps and Social Security is cut off to pay bond holders.

You will see mass rioting and desperate people doing desperate things.

bubblemania's picture

As Big Ben said, that's not happening in his lifetime. Even if inflation goes full hyper, rates will stay below long-term average. You just don't understand the amount of political capital invested in this motherfuching scam.

khakuda's picture

"Despite acknowledging improvement, Yellen generally continued to focus on the substantial degree of slack in the labor market, and highlighted wage growth failing to significantly outpace inflation. "

And, as such, by purposefully creating Personal Consumption Expenditures inflation, the Fed continues to target a mandate of making people worse off.  Thanks SO much.


bubblemania's picture

Recently read the Greg Smith book, its always great to see the perspective of the worker bee.

Yen Cross's picture

   Macroprudential; When a banker walks into a whore house with $100.00 and a joint credit card (him & wife) and wants the $1000.00 hooker.

   He has to try and find a way to fund $900.00+ tip of the transaction with the credit card without his wife finding out because he only has $100.00 in cash. That's Macroprudential...

Madcow's picture

Wait - is the sky green or is it blue? Or is it still "both"?? It seems the BIS, FED, ECB, and the rest of the Hee-Haw Gang are expecting market participants to simultaneously belief in 2 antithetical outcomes.

XRAYD's picture

WHO R these people, and WHEN do they "know" it?