Dollar Jumps As Yellen Goes Full Bernanke: Warns "Asset Valuations Are High" But Risk Is "Contained"

Tyler Durden's picture

Yes, departing Fed chair Janet Yellen used the 'c' word...

Federal Reserve Chair Janet Yellen, in prepared remarks ahead of what may be her last appearance before Congress as head of the central bank, somewhat gloated at the steadily brightening picture for the U.S. economy she has left behind for Jay Powell (while downplaying the risks of financial instability).

“The economic expansion is increasingly broad based across sectors as well as across much of the global economy," Yellen said in prepared testimony to the bicameral Joint Economic Committee on Wednesday in Washington.

 

“I expect that, with gradual adjustments in the stance of monetary policy, the economy will continue to expand and the job market will strengthen somewhat further, supporting faster growth in wages and incomes."

In her statement, she echoed the same phrasing as Powell used yesterday, that she expects the Fed to continue gradually raising interest rates and trimming its balance sheet.

However, with stocks trading at record highs, Yellen downplayed the threat of financial instability, dropping the 'c' word in a completely reassuring Bernanke-esque manner...

“Although asset valuations are high by historical standards, overall vulnerabilities in the financial sector appear moderate, as the banking system is well capitalized and broad measures of leverage and credit growth remain contained,” she said.

While admitting she had no idea still if low inflation was transitory, Yellen urged Congress to address the two issues undermining the potential for faster economic growth in the U.S.: the decline in the size of the U.S. workforce relative to population, and disappointing levels of productivity growth.

“Congress might consider policies that encourage business investment and capital formation, improve the nation’s infrastructure, raise the quality of our educational system, and support innovation and the adoption of new technologies,’’ Yellen said.

Full prepared remarks below (hearing is set to start at 10amET):

Chairman Tiberi, Ranking Member Heinrich, and members of the Committee, I appreciate the opportunity to testify before you today. I will discuss the current economic outlook and monetary policy.

The Economic Outlook

The U.S. economy has strengthened further this year. Smoothing through the volatility caused by the recent hurricanes, job gains averaged about 170,000 per month from January through October, a somewhat slower pace than last year but still above the range that we estimate will be consistent with absorbing new entrants to the labor force in coming years. With the job gains this year, 17 million more Americans are employed now than eight years ago. Meanwhile, the unemployment rate, which stood at 4.1 percent in October, has fallen 0.6 percentage point since the turn of the year and is nearly 6 percentage points below its peak in 2010. In addition, the labor force participation rate has changed little, on net, in recent years, which is another indication of improving conditions in the labor market, given the downward pressure on the participation rate associated with an aging population. However, despite these labor market gains, wage growth has remained relatively modest. Unemployment rates for African Americans and Hispanics, which tend to be more sensitive to overall economic conditions than those for whites, have moved down, on net, over the past year and are now near levels last seen before the recession. That said, it remains the case that unemployment rates for these minority groups are noticeably higher than for the nation overall.

Meanwhile, economic growth appears to have stepped up from its subdued pace early in the year. After having risen at an annual rate of just 1-1/4 percent in the first quarter, U.S. inflation-adjusted gross domestic product (GDP) is currently estimated to have increased at a 3 percent pace in both the second and third quarters despite the disruptions to economic activity in the third quarter caused by the recent hurricanes. Moreover, the economic expansion is increasingly broad based across sectors as well as across much of the global economy. I expect that, with gradual adjustments in the stance of monetary policy, the economy will continue to expand and the job market will strengthen somewhat further, supporting faster growth in wages and incomes. Although asset valuations are high by historical standards, overall vulnerabilities in the financial sector appear moderate, as the banking system is well capitalized and broad measures of leverage and credit growth remain contained.

Even with a step-up in growth of economic activity and a stronger labor market, inflation has continued to run below the 2 percent rate that the Federal Open Market Committee (FOMC) judges most consistent with our congressional mandate to foster both maximum employment and price stability. Increases in gasoline prices in the aftermath of the hurricanes temporarily pushed up measures of overall consumer price inflation, but inflation for items other than food and energy has remained surprisingly subdued. The total price index for personal consumption expenditures increased 1.6 percent over the 12 months ending in September, while the core price index, which excludes energy and food prices, rose just 1.3 percent over the same period, about 1/2 percentage point slower than a year earlier. In my view, the recent lower readings on inflation likely reflect transitory factors. As these transitory factors fade, I anticipate that inflation will stabilize around 2 percent over the medium term. However, it is also possible that this year's low inflation could reflect something more persistent. Indeed, inflation has been below the Committee's 2 percent objective for most of the past five years. Against this backdrop, the FOMC has indicated that it intends to carefully monitor actual and expected progress toward our inflation goal.

Although the economy and the jobs market are generally quite strong, real GDP growth has been disappointingly slow during this expansion relative to earlier decades. One key reason for this slowdown has been the retirement of the older members of the baby-boom generation and hence the slower growth of the labor force. Another key reason has been the unusually sluggish pace of productivity growth in recent years. To generate a sustained boost in economic growth without causing inflation that is too high, we will need to address these underlying causes. In this regard, the Congress might consider policies that encourage business investment and capital formation, improve the nation's infrastructure, raise the quality of our educational system, and support innovation and the adoption of new technologies.

Monetary Policy

I will turn now to the implications of recent economic developments and the outlook for monetary policy. With ongoing strengthening in labor market conditions and an outlook for inflation to return to 2 percent over the next couple of years, the FOMC has continued to gradually reduce policy accommodation. The Committee raised the target range for the federal funds rate by 1/4 percentage point at both our March and June meetings, with the range now standing at 1 to 1-1/4 percent. And, in October, the Committee began its balance sheet normalization program, which will gradually and predictably reduce our securities holdings. The Committee set limits on the pace of balance sheet reduction; those limits should guard against outsized moves in interest rates and other potential market strains. Indeed, there has been little, if any, market effect associated with the balance sheet runoff to date. We do not foresee a need to alter the balance sheet program, but, as we said in June, we would be prepared to resume reinvestments if a material deterioration in the economic outlook were to warrant a sizable reduction in the federal funds rate.

Changes to the target range for the federal funds rate will continue to be the Committee's primary means of adjusting the stance of monetary policy. At our meeting earlier this month, we decided to maintain the existing target range for the federal funds rate. We continue to expect that gradual increases in the federal funds rate will be appropriate to sustain a healthy labor market and stabilize inflation around the FOMC's 2 percent objective. That expectation is based on the view that the current level of the federal funds rate remains somewhat below its neutral level--that is, the rate that is neither expansionary nor contractionary and keeps the economy operating on an even keel. The neutral rate currently appears to be quite low by historical standards, implying that the federal funds rate would not have to rise much further to get to a neutral policy stance. If the neutral level rises somewhat over time, as most FOMC participants expect, additional gradual rate hikes would likely be appropriate over the next few years to sustain the economic expansion.

Of course, policy is not on a preset course; the appropriate path for the federal funds rate will depend on the economic outlook as informed by incoming data. The Committee has noted that it will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. More generally, in determining the timing and size of future interest rate adjustments, the Committee will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Thank you. I would be pleased to answer your questions.

*  *  *

And the market's reaction to this 'reassuring' commentary that says nothing new... USD spikes as Citi notes "The continued willingness to overlook inflation misses on ‘transitory factors’ is thus relatively hawkish, in a sense. This is reassuring enough for US assets it seems."

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
hoist the bs flag's picture

this time it's different

hoist the bs flag's picture

..."it's good enough for me". 

spastic_colon's picture

how many yacht's can central banks water ski behind??

thunderchief's picture

She  just can't stop grading her own homework and report card.

With a big role of red lipstick..A+, A+, A+

buzzsaw99's picture

bitch, who are you talking to?  nobody doubts that it's "contained".

wmbz's picture

Great job Jack. Now drop dead asshole.

FreeShitter's picture

Translation.....QE foreva, "You should have been born rich".....the rest of ya's? Get back to work.

Lost in translation's picture

Yellen is contained.

That’s what the diaper is for.

LawsofPhysics's picture

"There is no housing bubble" - Ben Bernanke circa 2007

 

"Once unemployment goes below 6.5 % we will normalize interest rates" - Ben Bernanke

 

How the fuck is this fucker still alive? Anyone else lying to congress would be rotting in a prison cell somewhere at a minimum.

buzzsaw99's picture

what difference, at this point, does it make?

LawsofPhysics's picture

Indeed, let the free money roll!  Spend it while you can!

"Full Faith and Credit"

same as it ever was...

buzzsaw99's picture

exactly, it's free money.  knowing this all we have to do is btfd for the rest of our lives.  easy peasy.

Calculus99's picture

Risk is always under control and moderate until the day it isn't. 

Then trying to control it is like taking on a honey badger and that's one hell of a fight. 

gmak's picture

Subprime is contained too.  Party on, Garth.

Dutch1206's picture

As long as there's enough grease on the earth to keep the presses running everything will be fine.

1stepcloser's picture

no grease required, but I'd stock up on replacement P and Ctrl keys

Dutch1206's picture

Touche.  This is the 21st century after all

small axe's picture

always clever how the Federales can say incredibly stupid things and yet still convince otherwise sane people to gamble with their savings in order to perpetuate a system that is designed for one-way transfer of wealth to a select few.

suspend belief, and pass through these gates...

 

GotAFriendInBen's picture

NNothing more comforting than resting in bubba's baggy saggy wrinkled bosom

Racer's picture

These people are so full of their own self importance it is obscene

Dg4884's picture

Contained.  Isn't that akin to yelling 'fire!' in a croweded movie theater?

66Mustanggirl's picture

I found this article by Jim Cramer from March 2007. In it, he expounds on his gaming of the system.....errrr investment wisdom......by revealing the steps of a strategy called “fomenting”. This strategy can be summed up this revealing statement by Cramer about his so-called investment ethics as a hedge fund manager:

“What’s important when you are in that hedge fund mode is to not do anything remotely truthful, because the truth is so against your view, that it’s important to create a new truth, to develop a fiction.”
https://dealbook.nytimes.com/2007/03/20/cramer-market-manipulator/

Apparently, hedge fund managers worldwide and the Fed took his strategy and ran with it. Ten years later, welcome to the Greatest Dog and Pony Show On Earth, colloquially known worldwide as Wall Street. Perhaps Powell can start wearing a P.T. Barnum outfit as his official garb when he takes over this 3-ring circus so we can all just stop with this ridiculous pretense of legitimacy.

66Mustanggirl's picture

I really, REALLY hope that one day soon everyone, from the Fed Chairman to hedge fund managers, and every corrupt-to-the-core market manipulator in between is brought before the American people in shackles so proper justice can be served in this epic, Mother-of-all Ponzi schemes.

bottom_line's picture

So is Streep lined up for a Biopic yet?

Dogman57's picture

Well, no more from Mr. Yellen.

mo mule's picture

Yellen is blind and crazy. Just look at Bitcoin, there is your risk.  Soon we won't need dollars, well maybe as a backup secondary currency for the poor people of the US.

No dollars needed....

No Fed needed??????

Grandad Grumps's picture

"Although asset valuations are high by historical standards, overall vulnerabilities in the financial sector appear moderate, as the banking system is well capitalized and broad measures of leverage and credit growth remain contained"

Damn-it Janet ... The capitalization of the banking sector is composed of loans and derivatives ... all foofoo fiat. They/you could decide to disappear it overnight. I believe that your basis for optimism to control risk is based on computer control of the fiat equity markets.

venturen's picture

I look forward to the first Billion Dollar art work....maybe dried feces on a piece of wood or dollar bill or some other wonderful effort. 

manasaputrah's picture

Yes, [farting and then] departing Fed chair Janet Yellen used

TalkToLind's picture

2 quarts of orange juice now equals 1.85 quarts, but there is no inflation.  That's all y'all goyim need to know.

libertyanyday's picture

The FED has NEVER prvented any recession oe depression...............NEVER.  She has no idea