Janet Yellen's J-Hole Speech: Slack Remains, QE Is Over, Rates Could Rise Sooner (Or Later)

Tyler Durden's picture

Simply put, as Citi noted, unless Fed head Janet Yellen goes full-dovish, risk assets face tremendous downside potential.  As ConvergEx's Nick Colas notes, Yellen receives a "B" grade from financial professionals, fewer than half (49%) of those surveyed approve of the job the Federal Reserve is doing. A clear majority (59%) of respondents describe the Fed as being "behind the curve" with respect to interest rates. Despite better-than-expected data whereever one looks in the US (apart from wages and housing), any hint of seni-dovish, or contingent dovish... or heaven forbid hawkish comments and the massive consensus trade that the Yellen Put has an ever-increasing strike price will fall rapidly by the wayside... though Draghi could come in later and save the day. With S&P so close to 2000, we suspect any hint of word 'slack' and algos will run stops and USDJPY will break 104.

Pre-Yellen: S&P Futs 1986, 10Y 2.407%, JPY 103.77, Gold $1278, Oil $93.35



We are unsure if there is a live feed (due to start at 10amET) - click image for link to live Feed from Bloomberg if there is one.


The full Yellen wordcloud:

Full Statement (link):



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As Deutsche's Jim Reid notes,

Chair to provide us with an updated assessment on the infamous ‘Yellen dashboard’ in evaluating the ongoing labour market slack and how they have yet to normalise relative to 2002-2007 levels. Some of these alternative measures she monitors include duration of unemployment, quit rate in JOLTS data, labour force participation etc. Any sound bite that touches on the debate of cyclical versus structural drivers of labour force participation will also be closely followed. Unlike some of the previous Jackson Hole symposiums, this is likely not one that will serve as a precursor of any monetary policy changes but the tone of Yellen's speech may still have a market impact and set the mood for busier times ahead in September. Given markets are seemingly expecting nothing but another dovish display from Yellen the risk is perhaps skewed to the other side.

And ConvergEx shows even the pros are in doubt...

  • ConvergEx Group Survey Finds Less Than Half of Respondents Approve of Job the Fed is Doing
  • Two-Thirds of Respondents Say Central Bank Has Too Much Influence On Markets
  • Financial Professionals Name Paul Volcker As Best Federal Reserve Chairman Of All Time

"The financial industry likes Janet Yellen but believes she leads a central bank that is overexposed and behind the curve," said Nicholas Colas, ConvergEx Group chief market strategist. "There's tangible fear among investment professionals about the unwinding of Quantitative Easing and the painful increases in rates that will follow. Our survey shows that Ms. Yellen is seen as a strong leader, and investors don't want to scrap the structure of the Fed, but there is real concern about what happens next."


As we noted previously, expectations are extremely high...

‘Full dovish’ means moving the goal posts on the targets. Keeping the current targets, even accompanied by rhetoric and optimism, is hawkish because it suggests that normalization is coming as well get closer to the targets.
There are three ways by which Yellen can express dovishness, but only one that breaks new ground:

i) Full dovish

1) Argue that the natural rate is less than 5 ¼ -  5 ½ %


2) Advocate for a temporary overshoot of the inflation target


3) Emphasize the uncertainty around NAIRU estimates that tightening can wait till there is real evidence of accelerating inflation.


4) Introduce a soft wage target of about 3.5%, consistent with  aspirational 1.5% productivity growth and 2% unit labor cost growth

ii) Semi dovish

1) Make the case that there is no sustained inflation likely without accelerating wage growth and there is little broad evidence for such a pickup, but keep existing inflation and unemployment targets


2) Introduce a new labor market indicator that captures the slack she feels that the unemployment rate misses, but again keep to existing targets

iii) Contingent dovish

1) Forecasting a pickup in productivity and labor force participation that will limit the need for tightening

Full dovish goes beyond anything she has stated explicitly in her comments. It would give stimulus more room on unemployment, inflation or both, and  lead to yields dropping even further, taking the USD with them. There are straightforward arguments to justify full dovish, but the Chair has not advocated any of them so far, so it would clearly plant her among the most committed doves.
Semi dovish may generate a strong initial market reaction if it looks as if it is introducing new factors into the policy equation but is much more ambiguous. 'Low wages imply low inflation' is a property of most inflation models but much weaker than  saying that wage growth is now a target.  Were inflation to pick up for others reasons the Fed would still tighten, even if wages remained soft. Similarly it  is unclear what it means to say that the unemployment rate understates slack, but 5 ¼ - 5 ½% is the target anyway. While we would focus on whether the goalposts are being shifted, semi dovish can sound very dovish until it becomes clear whether there is any functional shift in the FOMC’s goals.
Contingent dovish is the argument she has put forward for a long time. It sounds more dovish than it is because no one has a real handle on the drivers of trend productivity growth and the US supply side has disappointed badly.  Both the participation rate and productivity growth are at weak levels and there is no compelling case that either will pick up.  The safest assumption is that trend productivity growth over the next three years is what it was the last three years, and that participation rates are unlikely to surge.

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Were she simply to say that the targets are the targets and they will begin to reduce stimulus as they are approached, it would be a tremendous let down and viewed as very hawkish versus expectations.

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Cattender's picture

one Minute in and "0" Comments.. WTF?

Hippocratic Oaf's picture

Helicopters, printers and zirp, oh my.


rehypothecator's picture

Asset purchases to go to zero in one month.  And, oh, by the way, Belgium to continue buying at 80 billion a month, for the forseeable future.  Just a coincidence, really.  No idea where Belgium gets that kind of money.  Must be the chocolate.  But anyway, that's the plan.  

lordylord's picture

This has nothing to do with the article...but...I saw a Hillary 2016 bumper sticker in the Chicago area yesterday.  WHAT THE FUCK???  WE ARE SCREWED!!!

wallstreetaposteriori's picture

Ja-Yo's J-hole speech looks to be uber-bullish full on retard sister fucking for the market....  Just listen to cocophony of pundits on CNBC and their uber-boner view on the bull market.

nope-1004's picture

They have no f'n clue what they are doing and are too scared to speak the truth.  This bad movie is getting boring.  Default looms on this giant ponzi and they know it.


Chupacabra-322's picture

Default looms? Perhaps Default has already occurred, the rest are False Narratives, Propaganda, PsyOp & Politcial Therater with these Psycopaths.

The Restructureing is occuring as we speak. Least you forget these NWO Scum Fucks have decades & Century plans well in advance.

zaphod's picture

Default does not loom because the second it does they print.

Germany style collapse followed by Germany style fascism looms.

InjectTheVenom's picture

yaaawwwwwwwwwwnn.......suck it janet.   

Dr. Engali's picture

Stop worrying about Hitlary. She has no elite backing and she is toast. My biggest concern is that I may have to see pictures of that kankleasarous on the beach again.

lordylord's picture

"Stop worrying about Hitlary."

I hope you are right.  But it still remains, if someone is dumb enough to support Hillary for POTUS, they will support someone else who is just as bad.  Elections aren't going to change anything.

Grimaldus's picture

It's the morons you have to worry about. Plenty of them ready to vote for bloody progessive murderers like Hillary.



Harbanger's picture

Well Obama already said that he's backing Indian Chief Warren.  She's already setting up the BS meme that she will fix the Banking system, kinda like Obama fixed the Healthcare system.  If there is any progressive that's even more full of shit than Barry, it's Warren.


NotApplicable's picture

What? She's lifetime CIA, and her supporters despise Obummer for the last selection, so she already has a support base to put any other candidate to shame.

As for the elite, they are only interested in who can fool the greater amount of the sheeple, hence her having to stand-down the last time, as the Magic Negro mesmerized the world. Otherwise, they could give two fucks as to who holds the office, just as long as POTUS can provide plausible cover for their activities.

The idea that she is toast is red/blue team fodder for the upcoming horse race. It also protects her from attacks on her record/character for as long as possible (which is her only real danger concerning the sheeple).

Bunghole's picture

Hopefully next time she hits the beach, she'll have a harpoon in her side and dozens of Japanese sailors screaming "Fuck you dolphin, Fuck you Whale"

PartysOver's picture

"Hillary 2016 bumper sticker in the Chicago area yesterday"

So, what tyoe of body armour do you own.   Just curious.  Looking for recs.

balolalo's picture

  J-Hole 2014 

"Pulling the Plug"

pgroup's picture

Why not Iran? Or Syria? Now either one of those would be consistent with the jugeared jackass. Toss in the City of Ferguson and it's a triple play .

DullKnife's picture

Um, on Janet Yellen's resume.....is there any indication of actual work experience?

You know...a job like the little people have (well, used to have)?


nope-1004's picture

She is an established insider, who took part in the selling of our gold with the guy next to her, Robert Rubin.  Rubin is a complete fascist and banker thug.  They both belong in prison along with Bernocchio.


lester1's picture

Its not Belgium, Its EUROCLEAR.

Basically the FED's "primary dealers" on Wall Street are secretly buying treasuries via EUROCLEAR based in Belgium.

So instead of loaning out that QE money to Main Street to help the economy, the banks are secretly buying more treasuries.

Its all one giant full circle ponzi scheme !!

Surly Bear's picture

Talk about hitting the J-spot....

0b1knob's picture

You misspelled A-Hole in that headline.

JRobby's picture

How does she get "Hon." in front of her name anyway?

A few card tricks and they are ready for a fucking coronation these days.

Aknownymouse's picture

Lots of words. NO meaning

101 years and counting's picture

"we still have no clue how the real world works, or how businesses run.  we've never been part of the economy outside of academia."

lordylord's picture

RE: "we still have no clue how the real world works, or how businesses run.  we've never been part of the economy outside of academia."

They know exactly what they are doing.  They are stealing wealth.  They are very good at it.

sleigher's picture

When does the part happen where everything drops and they buy up property at pennies on the dollar?  Too bad life isn't like Trading Places and we could have Eddie Murphy yell something about the orange crop on the trading floor and mess up all their plans.

1000yrdstare's picture

I know how my local community works, I try to trade in assets that are not FRN's I have a mutual understanding with the person I am dealing with and build a trust with them, THAT is what is coming soon to a city\town near you.

(best to start now....)

oh and don't forget the security, either have it, or pay for it....

DavidC's picture

Yup, all bollocks.


JRobby's picture

Disciples of "Alan the Great"  aka "faucet man"

Kirk2NCC1701's picture

Lots of words, ALL CODE.  Get out your Bablfish translator, to translate Clingon into English.

Uhura, what'd she say?

LostandFound's picture

If I applied this terminology to any other industry I would be out on the street with a begging bowl. What a load of meaningless nonsense

RattNRoll's picture

Shes speaking out of her A-Hole....

lester1's picture

QE is over ??? OMG what will that do to tresuries?? Will tiny Belgium be able to pick up the slack ??

fonzannoon's picture

the fed already owns the bond market. yields will be fine.

gold-is-not-dead's picture

No worries, new volume of EUR could fix the glitch of their USD toxic holdings.

Bay of Pigs's picture

Yes, tiny little Belgium is the ace in the hole for Mr BernYellin....

The Big Ching-aso's picture

Was she Yellen all this or just like using her normal voice?

Dr. Engali's picture

rates will continue their downward trend and we will see the ten year yielding below 1%.

lester1's picture


Dr. Engali's picture

That is exactly why we will see the ten year drop below 1%. Bread may cost $10.00 a loaf, but .gov can continue to service the debt.

Boston's picture

QE is over ??? OMG what will that do to tresuries??

How about looking at what happened the last times QE ended.  Risk off ensued...every time. And the scared money flowed into Treasuries...every time.

Bill of Rights's picture

Back to derivatives - The Exchange with Amanda Lang - CBC Player

Must watch

Powerful conversation, taking no prisoners (including mentioning the "bought and paid for Congress" and that Tavakoli's former boss, Bill Broekschmidt, was recently found hanged)

IridiumRebel's picture

Clearly gold must be hammer-fucked by this news.....

ebworthen's picture

That is good, thanks, and only 6:29 - worth the watch.

$700 Trillion in derivatives, $7 Trillion traded daily (which was the entire market in 1990).

And people think the house of cards fell down in 2008-2009, oh boy.