Much has been said about Yellen's less than stellar first press conference so we will let her own words do most of the talking. First, from the transcript of her prepared remarks and the following Q&A, here are some highlights.
First, the word count:
- Market(s): 35
- Economy: 25
- Weather: 7
- Inflation: 58
- Deflation: 1
The word cloud:
[4]
Goldman's take of the press conference (as opposed to the statement which we summarized earlier):
BOTTOM LINE: Chair Yellen's first post-meeting press conference came across as slightly more hawkish than expected.
MAIN POINTS:
1. When asked how to interpret the new guidance that the fed funds rate would remain in the current 0 to 25 basis point range for a "considerable time after the asset purchase program ends," Chair Yellen stated that "the language in the statement … probably means something on the order of six months." Assuming tapering continues at a pace of $10bn per meeting, this suggests rate hikes could begin as early as mid-2015.
2. Asked how to explain the hawkish shift in the "dots," Yellen stated that "the labor market more broadly I think has improved a little more than we might have expected," but went on to say that "I think that one should not look to the dot plot so to speak as the primary way in which the committee wants to or is speaking about policy to the public at large."
3. Explaining the statement that the fed funds rate may remain at a below-normal level even as employment and inflation approach "mandate-consistent levels," Yellen mainly appealed to persistent headwinds from the financial crisis, and did not explicitly mention optimal control considerations as she has in the past.
4. Regarding distortions from the weather, she stated that "it's an important factor. It's not the only factor," in explaining the weaker data. She showed a refreshing amount of candor by noting that "we probably overdid the optimism in January, so in some sense our views have moved around here a little bit."
5. Asked about wage inflation, she said that 3-4% annual gains in wages would be more normal, in her view, consistent with the average rate of wage increase seen in the last business cycle expansion. She described current wage inflation as "running at 2%."
6. She was somewhat dismissive of recent arguments that the short-term unemployment rate is a more important measure of slack for wage and price inflation than the headline unemployment rate. Specifically, she said that "I think it would be tremendously premature to adopt any notion that says that that is an accurate read, on either how inflation is determined or what constitutes slack in the labor market."
And while the punchline was already noted, namely the "6 month" statement:
So, the language that we use in this statement is considerable, period. So, I -- I, you know, this is the kind of term it's hard to define, but, you know, it probably means something on the order of around six months or that type of thing. But, you know, it depends -- what the statement is saying is it depends what conditions are like.
... which incidentally said nothing that the statement didn't already note, namley that if the tapering ends in the fall the first hike would be in mid-2015, or precisely as the "dots" suggested it would, she did have several other notable observations, some of which are highlighted below.
And the full transcript (pdf [5])