In previewing today's Janet Yellen testimony, Bloomberg's Richard Breslow observes the following: "I would be surprised and disappointed if she puts all that much weight on yesterday’s retail sales miss. Yes she is data dependent, but the fact remains the economy is not a zero rate economy. Furthermore and much more importantly, she realizes that there can’t be normal monetary policy transmission without a rate that can be cut. She needs to take the opportunity to raise rates even a paltry 25 bps to begin the long process of normalization. It isn’t what happens if they have to cut after raising. Having something to cut will be a victory in and of itself."
DB's Jim Reid had a more neutral stance:
Today the lens will be firmly focused on Janet Yellen at the first of her semi-annual testimonies in front of the House Financial Services Committee. The reality is that she will probably keep all her options open but will probably want to get across that the committee expects the normalisation process to start soon. Whether or not it can in reality is another matter and it will be interesting to hear how much she comments on recent events in Greece and China. While I acknowledge the reasons why the Fed feel they ought to raise rates I can't help but think that with nominal activity still so weak relative to history, in another time and another place the argument could be actually spun towards more easing being required rather than hikes. In an ideal world this perhaps would be more directed at the real economy rather than asset markets but it’s worth remembering that a hike at these low levels of normal activity is almost unprecedented in the history of the Federal Reserve. However I appreciate that further easing is certainly not up for any discussion in this world but it does feel to me that the narrative is slightly too skewed towards the fact that they have to raise rates simply because they've been at rock bottom levels for too long and not because of the normal drivers of rate rises (ie a combination of growth and inflation).
So expect much grilling from the House during the Q&A on the Fed's normalization plans, and perhaps some directed comments about the Fed leak to Medley although not too much: after all the same Congressmen know they are reliant on the same Fed to monetize whatever deficit-busting laws the pass in the coming years.
In the meantime, here are her prepared remarks, first the summary from MNI:
- 08:30 07/15 FED'S YELLEN: LIKELY TO HIKE 2015 IF ECON EVOLVES AS EXPECT
- 08:30 07/15 YELLEN: PROSPECTS FAVORABLE FOR LABOR MARKET, ECONOMY
- 08:30 07/15 YELLEN: FOMC DECISION MEETING-BY-MEETING BASED ON EMPL/INFL
- 08:30 07/15 YELLEN:AVOID STEPS HINDER ABILITY TO MAKE POL FREE OF POLITICS
- 08:30 07/15 YELLEN: FED HAS IMPROVED TRANSPARENCY,COMMUNICATIONS
- 08:30 07/15 YELLEN: NET EXPORTS HELD DOWN BY DOLLAR RISE,WEAK FRGN GROWTH
- 08:30 07/15 YELLEN: TOO MANY NOT SEEKING WORK; WAGE GAINS SUBDUED
- 08:30 07/15 YELLEN: LABOR MKT STILL SLACK NOT YET CONSISTENT W/MAX EMPLOY
- 08:30 07/15 YELLEN:MOST ON FOMC EXPECT GRADUAL HIKES AS HEADWINDS DIMINISH
- 08:30 07/15 YELLEN: IF ECON WEAKER/STRONGER VS EXPECTED,POL PATH WLD ALTER
- 08:30 07/15 YELLEN: ENTIRE PATH OF RATES MATTERS MORE THAN LIFTOFF DATE
- 08:30 07/15 YELLEN: LIFTOFF WILL SHOW ECONOMY'S PROGRESS SINCE CRISIS
- 08:30 07/15 YELLEN: PCE INFL BELOW 2% BUT INFL READINGS HAVE FIRMED LATELY
- 08:30 07/15 YELLEN: INFL TO HIT 2% AS EMPL IMPROVES, TRANSITORY FACTORS GO
- 08:30 07/15 YELLEN: FOREIGN GROWTH COULD RISE MORE QUICKLY THAN EXPECTED
- 08:30 07/15 YELLEN: GREECE,CHINA FOREIGN ISSUES POSE SOME RISKS TO GROWTH
- 08:30 07/15 YELLEN: DOLLAR, OIL PRICE HEADWINDS TO DIMINISH OVER TIME
- 08:30 07/15 YELLEN:HIKES TO BE GRADUAL;TO STAY ACCOMMODATIVE FOR SOME TIME
- 08:30 07/15 YELLEN:US ECON MAY SNAP BACK FASTER AS TRANSITORY FACTORS FADE
Which is largely a recap of her Friday statement in Cleveland.
Here is the punchline from the horse's mouth:
The Committee will determine the timing of the initial increase in the
federal funds rate on a meeting-by-meeting basis, depending on its assessment of realized and
expected progress toward its objectives of maximum employment and 2 percent inflation. If the
economy evolves as we expect, economic conditions likely would make it appropriate at some
point this year to raise the federal funds rate target, thereby beginning to normalize the stance of
monetary policy. Indeed, most participants in June projected that an increase in the federal funds
target range would likely become appropriate before year-end. But let me emphasize again that
these are projections based on the anticipated path of the economy, not statements of intent to
raise rates at any particular time.
So what can destabilize the outlook? Apparently China and Greece continue to be in the crosshairs:
As always, however, there are some uncertainties in the economic outlook. Foreign developments, in particular, pose some risks to U.S. growth. Most notably, although the recovery in the euro area appears to have gained a firmer footing, the situation in Greece remains difficult. And China continues to grapple with the challenges posed by high debt, weak property markets, and volatile financial conditions.
But there could be good news, especially if the harsh snow we witnessed in June finally ends:
... economic growth abroad could also pick up more quickly than observers generally anticipate, providing additional support for U.S. economic activity. The U.S. economy also might snap back more quickly as the transitory influences holding down first-half growth fade and the boost to consumer spending from low oil prices shows through more definitively.
An excerpt from Bloomberg's prepared remarks [14]:
Federal Reserve Chair Janet Yellen said prospects are good for further improvement in the labor market and the economy, keeping the central bank on track for an interest-rate increase in 2015.
“If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target,” Yellen said in testimony prepared for delivery Wednesday before the House Financial Services Committee in Washington. She said Fed officials expect growth “to strengthen over the remainder of this year and the unemployment rate to decline gradually.”
Yellen, 68, again emphasized that the timing of the first rate rise in almost a decade is less important than the subsequent path of increases, which she said would be gradual. She said Fed forecasts for higher rates this year are projections and “not statements of intent to raise rates at any particular time.”
In the first of two scheduled days of testimony before Congress, Yellen repeated that the Fed will tighten policy when it sees more improvement in the labor market and is “reasonably confident” that inflation will head back toward 2 percent in the medium term.
Yellen’s testimony was similar to a speech she gave on July 10. She again acknowledged concerns over the situation in Greece and added China to her list of overseas risks.
Still, she sounded a note of optimism, saying that “economic growth abroad could also pick up more quickly than observers generally anticipate, providing additional support for U.S. economic activity.”
And here is the full statement (link [15])
