Bank Stocks, Dollar, & Yields Surge After Yellen Warns "Waiting Too Long To Hike Is Unwise" - Speech Highlights And Live Feed

Tyler Durden's picture

Live Feed

* * *

March rate-hike expectations have risen to their historical highs... (around 36%)

Longer-term Treasury yields took another leg higher as Yellen talked about the Fed's balance sheet.

 

Bank stocks are leading post-Yellen with bonds and bullion lower... The broad stock indices are unchanged...

 

Utes, Tech, and Energy are weighing on indices, only banks are higher...

 

Treasury yields are now higher across the entire curve year-to-date...

 
 

Update:

Is March live? That is what Sen. Dean Heller (R., Nev.) wanted to know when he asked the Chair "Is the Fed going to raise rates in March?"

Yellen responded with a variation on the language she used in her prepared testimony: The Fed will look at the proper stance of policy "at our upcoming meetings." Every meeting is live, she said, but she can't say precisely when the Fed will act—though the Fed does expect it will raise rates this year. She said, decisions on rates will be driven by trends in the economy, not speculation about potential changes in fiscal policy.

“Precisely when we would take an action, whether in March or May or June, I know people are focused on that,” Yellen said adding “I can’t tell you exactly which meeting it would be. I would say that every meeting is live.”

Heller tried several times to get Ms. Yellen to weigh in on specific policy proposals, including a border-adjusted tax, but she smiled and said that those decisions belong to Congress.

* * *

Key Q&A Responses:

  • YELLEN: WOULD ANTICIPATE BALANCE SHEET EVENTUALLY MUCH SMALLER
  • YELLEN: FED DOESN'T WANT TO USE BAL SHEET AS ACTIVE POLICY TOOL
  • YELLEN: FOMC TO DISCUSS BALANCE SHEET STRATEGY IN COMING MONTHS
  • YELLEN: FOMC'S LONGER RUN GOAL IS TO SHRINK BALANCE SHEET - BBG

Update:  Why did the dollar and Treasuries react as if stung moments after Yellen's prepared remarks were released?

Because according to a cursory scan of her speech, she was more hawkish than most expected, arguably making a March rate hike "live" after warning that "as I noted on previous occasions, waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession."

Further hawkishness emerged from her claim that "Incoming data suggest that labor market conditions continue to strengthen and inflation is moving up to 2 percent, consistent with the Committee’s expectations. At our upcoming meetings, the Committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate."

Yet to offset that hawkshness, Yellen cautioned that the US economy and fiscal policy face an uncertain path under the administration of Donald Trump, as she played down any expectations of a March rate rise and declared “monetary policy is not on a preset course”. In prepared remarks for her Valentine’s Day testimony Ms Yellen also struck a note of caution about the new administration and expectations that its plans for tax cuts, infrastructure spending would lead to looser fiscal policy and more rapid growth.

Indeed, looking at the Fed Funds market, March, the increase so far has been some what tepid, with odds increasing from 30% before, to 36% after Yellen's prepared remarks.

“Considerable uncertainty attends the economic outlook,” she said, pointing to “possible changes in US fiscal and other policies” as one of the main sources of that uncertainty alongside questions about productivity growth and international developments.

She added that any future moves, Ms Yellen said, would depend on continuing progress in both US employment and inflation, which at 1.6 per cent remains below the Fed’s 2 per cent target rate.

“The economic outlook is uncertain, and monetary policy is not on a preset course,” she told members of the Senate Banking Committee, adding that “changes in fiscal policy or other economic policies could potentially affect the economic outlook,” she said, adding that “it is too early to know what policy changes will be put in place or how their economic effects will unfold”.

* * *

Here are the speech higlights, courtesy of BBG

  • Yellen says incoming data indicates labor market conditions continue to strengthen and inflation is moving to 2%.
  • “At our upcoming meetings, the Committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” she says in prepared testimony for a Senate Banking Committee hearing
  • “Waiting too long to remove accommodation would be unwise,” Yellen reiterates
  • Discussing the balance sheet, she says committee has continued policy of reinvesting
  • “This policy, by keeping the Committee’s holdings of longer-term securities at sizeable levels, has helped maintain accommodative financial conditions”
  • Says monetary conditions are accommodative, which supports “some further strengthening” of labor market conditions and a return to 2% inflation
  • Says FOMC expects economy to continue expanding at “moderate pace” as job market strengthens “somewhat further” and inflation gradually increases to 2%
  • “The economic outlook is uncertain, and monetary policy is not on a preset course,” she says, adding uncertainties include possible changes in fiscal and other policies, the path of productivity growth and intl developments
  • It’s too early to know what policy changes will occur or how their effects will unfold, she says
  • Yellen highlights importance of improving the pace of longer-run economic growth and raising living standards with policies designed to improve productivity
  • Says she hopes fiscal changes will be consistent with putting fiscal accounts on sustainable path

The dollar reaction:

And yields:

* * *

Earlier:

Fed Chair Yellen will be appearing before Congress deliver her semi-annual monetary policy testimony (sometimes called the "Humphrey-Hawkins" testimony) today. Her prepared remarks are expected to sound similar to her most recent speech, noting that the labor market has tightened and wage pressures are increasing modestly.

As BofA details, she will likely note that the Fed is making progress toward its mandate of full employment and price stability with core inflation approaching the target.

However, we expect Yellen to reiterate that the Fed must proceed with a gradual hiking cycle, since rates are still close to the effective lower bound and that long-term rates are structurally lower.

 

In the Q&A session, we expect the focus to be on the debate over rules-based policy vs. discretion, the Fed's independence and proposed fiscal policy.

 

Yellen is likely to defend the Fed's independence and reiterate that fiscal stimulus is helpful, but that it depends on the design, especially given high debt levels.

"Our base case is Yellen will largely dance around the question but will nonetheless leave the door wide open to a wide range of possibilities because she can’t close any options off until the Committee has developed a plan," said Tom Porcelli, the chief US economist at RBC Capital Markets.

For now, the market is losing faith in the 'three hikes' forecast...

Before she spoke the ED curve implied the following probabilities...

And the question is whether Yellen can regain control over the Dollar having lost it apparently to Trump jawboning and China action...

Key headlines from a very hawkish Yellen speech:

  • *FED SAYS ALREADY-CONCERNING CRE VALUATIONS ROSE FURTHER
  • *YELLEN: FED TO ADJUST RATE PATH VIEWS AS OUTLOOK EVOLVES
  • *YELLEN REPEATS WAITING TOO LONG TO TIGHTEN `WOULD BE UNWISE'
  • *YELLEN: FURTHER ADJUSTMENT LIKELY NEEDED IF ECONOMY ON TRACK

Key Excerpt:

As I noted on previous occasions, waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession. Incoming data suggest that labor market conditions continue to strengthen and inflation is moving up to 2 percent, consistent with the Committee’s expectations. At our upcoming meetings, the Committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate.    
 

Full Prepared Remarks below (link here):

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Takeaction2's picture
Takeaction2 (not verified) Feb 14, 2017 11:00 AM

TRUMP.....AUDIT THESE FUCKERS.....Get rid of them!  You know!

.

.

Creature from Jekyll Island...

BullyBearish's picture

To DRAIN the SWAMP you need to cut off it's supply...the fed

 

E   N    D         t    h    e      F     E     D

Life of Illusion's picture

 

FED SHOULD STOP PURCHASING MBS

Finally, the Committee has continued its polic y of reinvesting proceeds from maturingTreasury securities and principal payments from agency debt and mortgage-backed securities.This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, hashelped maintain accommodative financial conditions

USisCorrupt's picture

I'm with TRUMP !

Take OUT the FED !

BaBaBouy's picture

The FED Is A Bubble ~ Audit & Replace ???

MFL5591's picture

Their plan is to crash this economy and Trump knows it!   Gold and Silver take the usual route ofter the tribal liars speak!

brianshell's picture

Sovereign money is the answer. Jackson did it. Lincoln did it.

https://www.youtube.com/watch?v=8Nvt13FFiYk

1. End Fed charter. 2. Enact 100% reserve for all banks. 3. Issue United States Notes.

If Munchkin won't do it, fire him. There are people who will.

Ink Pusher's picture

 But; 'Printing More and More Cash On A Bad Debt' Is My Motto Baby ! LOL

 

 

LeftandRightareWrong's picture

Economic growth depends on labor force growth, and labor force growth depends on ..... unfettered, illegal immigration?

Takeaction2's picture
Takeaction2 (not verified) StackShinyStuff Feb 14, 2017 11:36 AM

She is an amazing man...or something.  She talks so fucking slow...It is so hard to listen.  

It is also quite amazing how the dem/libs have to throw in those anti-Trump bombs here and there.  

J J Pettigrew's picture

I thnk she has had a stroke...which is perfect for Goldman Sachs....

Ms. Charlie McCarthy

MFL5591's picture

Lets me see if I understand this.  Despite her abysmal record in the past 8 years and the ongoing lies from her and Bernanke, along with a $4 trillion dollar balance sheet of junk debt, the market is still reacting to her every word?  When does this bullshit end?

MFL5591's picture

Waiting too long to hike is unwise  says the troll.  

 

She waited the perfect amount of time toill the clown departed the white house now will dump on Trump and republican party!

J J Pettigrew's picture

OH NO.they are INDEPENDENT....except for the bankers and wall street influences...and the Goldman Sachs insider info game..

Dr. Richard Head's picture

Trump loves debt, as does the Fed and its paper money fiat.  Until this core princple of our money system is addressed, those closest through the spigot will get their liquidity, politicians will be able to delay paying for their promises of a socialist utopia, and the purchasing power of the US dollar will continue to erode.  Nothing gets changed until this is tended to. 

 

J J Pettigrew's picture

Boy you are right about that....borrow and spend.

He was so broke in 1981 that HE OWNED THE BANKS...people forget that.

piceridu's picture

Is it possible that the other side will use The Fed to try and take down Trump? Rate hikes used as a weapon to destabilize?

Dr. Richard Head's picture

That would pop the bond market bubble of the greatest magnitudes in recorded history.  Plus, with the coorindated central bank ZIRP and NIRP policies, this owuld put the US DOHlar out to pasture.  If they did that, it would be to their own peril.  They have papered themselves into a corner...

InsaneBane's picture

Audit....and find out that Israel is the parasite indeed.

Mustafa Kemal's picture

OK, most here agree. BUT, do we think Trump is gonna go in that direction? It seems the tax change is postponed along with the BAT.

GreatUncle's picture

Amazing couldn't hike while Obama was to ensure it did not spike after trump took office.

A stitch up of Trump by Yellen, Obama should be paying for any hike to add to the debt he racked up.

Trump needs to tranparently audit everything so blame can be apportioned correctly other wise he has to carry the can.

Hammer823's picture

Even with a Hawkish statement the stock market continues to levitate.

Rigged to perfection, because it has to be.

https://www.instagram.com/the_rigged_street_journal/?hl=en

J J Pettigrew's picture

WHAT IS THE FED FUNDS RATE DOING UNDER THE INFLATION RATE FOR 8 YEARS?

AS THE DOW GOES FROM 7K TO 20K?

 

FreeShitter's picture

Transfering the wealth to the .01%

LawsofPhysics's picture

Bingo, this is in contradiction to their MANDATE!!!!

revoke their charter!!!!!

audit, prosecute, and repudiate ALL the debt!!!!

BigFatUglyBubble's picture

...kind of like the Hippocratic Oath.  That's a funny one...

J J Pettigrew's picture

Yes...their mandate is NOT DUAL...it is three fold.

Maximum Employment. Ok they did their best I guess.

Stable Prices. NOWHERE DOES THE FED HAVE THE PERMISSION OR THE MANDATE TO ENCOURAGE  ANY INFLATION!!!!!!!!!!!

Moderate Long Term Rates. Moderate means not extreme. We have had the MOST EXTREME LOW RATES FOR 8 YEARS....that is not Moderate by definition.

THE FED IS IN CONSTANT VIOLATION OF TWO OF THEIR THREE MANDATES and no one whispers a word!!!!!!!!!

ejmoosa's picture

Yes it needs to be revoked.

 

Yellen's comments would have been better in 2012, not 2017.  She's way too late.

J J Pettigrew's picture

Bernanke promised rates would normalize when unemployment dipped below 7%....then it was 6.5%

That was in 2009....and the rate goes to 4.7% and they still don't?  One wonders if they CAN?

When the Dow got back to 14k, the previous 2008 high, things should have gotten back to normal...

FED FUNDS HAVE NO BUSINESS BEING BELOW THE INFLATION RATE....EVER!  THAT IS THEFT.

When the Dow was 14k in 2007, short rates were near 5%.  Now the Dow is 20k and the rates are .75.

WTF!!!!!!!  Let no crisis go to waste......

The Fed should be held to their mandates, and if not, charter pulled.  Who exactly are they "independent" from?  Not wall st or the bankers...

J J Pettigrew's picture

Now Yellen is making the same "exit strategy" story that Bernnake made in 2009 WSJ July 9th...

so, it must be time for Janet to "exit"..and hand it off to the next promiser...

BTW, did anyone ask Janet about inflation, cummulative and compounded, being up over 13% since 2008?

And that is with the price of crude about half what it was.....

just wondering

r3phl0x's picture

A bond fund with a typ. weighted duration of 5 years would lose 5% if rates rise 1% that year.

If rates rise 5% in one year, it'll suffer an equity-like 25%+ decline, all else equal.

So they can't raise more than about 0.5-0.75%/yr without causing nominal losses to bond holders. They are really fucking pinned - can't rise faster than that without screwing over the entire fixed income market, but that means they don't have much ammo to fight wage inflation (which is all they care about.. workers becoming more expensive for their employers is historically the *actual* trigger for higher rates. They don't care much if at all about housing, equity, healthcare, tuition, or even commodity inflation).

Mustafa Kemal's picture

LawsofPhysics:

"in contradiction to their MANDATE!!!!

revoke their charter!!!!!

audit, prosecute, and repudiate ALL the debt!!!!"

This would indeed bring back some "lawsofEconomics" to the financial system. 

Bill of Rights's picture

And just like that out of no where and no news Gold gets hammered LMAO!

shizzledizzle's picture

The rate hike's in the mail.

syzygysus's picture

She's wearing purple with silver jewelry.

 

start stacking.

angry_dad's picture
angry_dad (not verified) syzygysus Feb 14, 2017 11:10 AM

who appointed this teletubbie ?

 

YouJustMadeTheList's picture
YouJustMadeTheList (not verified) angry_dad Feb 14, 2017 11:24 AM

At least 'the Bernank' once worked as a Pedro at South of the Border. What real life experience does this Yenta bring to the table anyway?

Yukon Cornholius's picture

She was Yoda's stunt double for about 900 years then she thought she'd give central planning a try.

J J Pettigrew's picture

Yellen is from Berkley......do the rioters know what she is doing for the 1%ers?

Dah?  

Chauncey Gardener's picture

Trump needs to fire this hermaphrodite.

Mustafa Kemal's picture

The Hildabeast wore purple after she lost. What is this?

Similar to the Hildebeast, Yellen actually looks unstable.

Maybe she senses pitchforks being deployed

LawsofPhysics's picture

"Full faith and credit"

"money" creation has NOT required real collateral cretion for quite some time and absolute power corrupts absolutely...

Therefore I suspect that the bankers and financiers will keep stealing real wealth so long as people keep accepting fiat currency in exchange for the products of their labor!!!

r3phl0x's picture

That really is the only solution: refuse to provide goods or services to anyone who offers you USD, as much as possible. It's not as crazy as it sounds - you can leave a W2 job that's getting taxed at 35% and start your own business, in effect exchanging your labor for equity instead of directly & immediately for USD. Then favor customers paying in PMs and/or crypto.