Update: So far little that was not in the prepared remarks. Here are the highlights from SMRA:
Reiterated that Fed "is very committed to achieve 2% objective", expect "over time" that will return toward objective, 12-month inflation rates likely "will remain low until" special factors have aged out, "premature to reach the judgment that we are not on the path" to return to objective, however, will be "watching very closely" the data and are "prepared to adjust" if needed. Policy not on a preset course.
Reduction of balance sheet expected to start "this year", "to my mind" the start could be "relatively soon", start of timing "does not matter a great deal".
FOMC has not discussed whether a rate hike and change to reinvestment policy could happen at same time.
On other topics:
- FOMC intends over time to return to primarily Treasurys in its holdings
- "To the best of my knowledge", no discussion about Fed buying student debt.
- "I would be very concerned about subjecting the Fed to appropriations."
- Yellen intends to serve out her term as Chair, has not given thought to renomination.
- "I'm pleased to see a nomination" [of Randal Quarles] for Governor and Vice Chair of Supervision, "look forward" to his input on supervisory issues if confirmed.
- "We try not to opine" on whether asset valuations are correct or not, as asset prices have moved up "have not seen a substantial increase in borrowing on those valuations", capital system is "strong" and "resilient".
- Low participation rate an artifact of an aging population.
* * *
Fed Chair Janet Yellen surprised markets again, when after weeks of a hawkish setup, she suggested that the Fed is not only uncertain "about when - and how much - inflation will respond to tightening resource utilization”, but warning that the federal funds rate may "not have to rise all that much further to get to a neutral policy stance."
Even Goldman was surprised by the unexpected dovish relent:
"We read the paragraph about the neutral rate as slightly dovish for the longer-run outlook, particularly the comment “…the federal funds rate would not have to rise all that much further to get to a neutral policy stance.” Chair Yellen confirmed that she still expects the neutral rate to rise somewhat over time but remain below levels that prevailed in previous decades."
And now it is her turn to explain why, as Richard Breslow lamented earlier, Fed watchers will soon need VR goggles to understand the relentlessly growing confusion in Fed announcements and forecasts.
A reminder of testimony protocol per the WSJ: the chairman of the committee and the ranking member for the Democrats typically both read prepared statements. Sometimes a subcommittee chair will also speak. Then Ms. Yellen will read aloud the testimony that we've already dissected here on the blog. Only then will questions begin. So although the hearing starts soon, we're probably still 20 or 30 minutes away from anything new.
As a further reminder, today’s hearing will be the first time Ms. Yellen has testified since a major development in the financial regulatory debate, which has been swirling since President Donald Trump was elected and promised to “do a number” on the 2010 Dodd-Frank financial overhaul law. The Trump administration’s Treasury Department published a report in June with dozens of recommendations for re-examining or rolling back rules on the banking industry. That is squarely within the Fed's purview, and she could get a lot of questions about the recommendations.
Another topic that will likely be bring up today is the Trump administration's first nominee to the Fed’s governing board. Randal Quarles, an investment-fund manager and former Treasury official, is on tap to be vice chair of supervision. That pick was formally announced on Monday.
Finally, watch for discussions of whether Yellen plans to remain at the Fed after the expiration of her term, or whether she will voluntarily hand over the key to the Fed printer to Gary Cohn.
Watch live below: