In a few minutes, Janet Yellen will address a lunch session in her native SF Fed (the same place which earlier this week [11]finally figured out what debt is) during a conference whose topic is The New Normal for Monetary Policy [12](the typo from "Paranormal" is easy to make).
The full formal agenda is shown below [13].
[14]
The informal agenda will be Yellen's explanation of how she plans on achieving the yield curve which we predicted back in 2010 [15] is just a matter of time.
[16]
And while it is unlikely Yellen will say much if anything actionable, the speech taking place 15 minutes before market close on a Friday has many wondering: why now, and how will the algos react to the headlines from her speech, if not so much in the Emini where lately it has been all Citadel and the Bank of Japan, then more in the EURUSD and USDJPY.
We will post the full speech once it is released in a few minutes.
And here are the headlines:
- YELLEN: TIGHTENING PACE COULD SPEED UP, SLOW, PAUSE OR REVERSE
- YELLEN: GRADUAL RISE IN RATES APPROPRIATE OVER NEXT FEW YEARS
- YELLEN SAYS RATE RISE MAY WELL BE WARRANTED LATER THIS YEAR
- YELLEN: STRONGER DOLLAR HURTING EXPORTS; HOUSING STILL SUBDUED
- YELLEN SAYS LABOR MARKET RECOVERY HAS BEEN SUBSTANTIAL
- YELLEN SAYS CAN'T WAIT UNTIL INFLATION BACK TO 2% BEFORE MOVING
But the punchlines, and why a rate hike appears a done deal at least in the eyes of the Fed:
I would first note that the current stance of monetary policy is clearly providing considerable economic stimulus. The near-zero setting for the federal funds rate has facilitated a sizable reduction in labor market slack over the past two years and appears to be consistent with further substantial gains. A modest increase in the federal funds rate would be highly unlikely to halt this progress, although such an increase might slow its pace somewhat.
Second, we need to keep in mind the well-established fact that the full effects of monetary policy are felt only after long lags. This means that policymakers cannot wait until they have achieved their objectives to begin adjusting policy. I would not consider it prudent to postpone the onset of normalization until we have reached, or are on the verge of reaching, our inflation objective. Doing so would create too great a risk of significantly overshooting both our objectives of maximum sustainable employment and 2 percent inflation, potentially undermining economic growth and employment if the FOMC is subsequently forced to tighten policy markedly or abruptly. In addition, holding rates too low for too long could encourage inappropriate risk-taking by investors, potentially undermining the stability of financial markets. That said, we must be reasonably confident at the time of the first rate increase that inflation will move up over time to our 2 percent objective, and that such an action will not impede continued solid growth in employment and output.
And here is Yellen's word count:
[17]
Fuil speech below (pdf [18])
