With algos not exactly enthralled by their initial several million reads of the key soundbites in the Yellen speech, they - along with carbon-based traders - are looking for guidance elsewhere. One place they traditionally go to is Fed mouthpiece Jon Hilsenrath, who unfortunately appears to be out of the loop lately, and the best he could do was underscore what the market already noted.
Specifically, Hilsy highlights Yellen's concerns that "financial conditions have become less supportive of economic growth, stresses in China and other foreign economies could weigh further on the U.S., and market expectations for inflation are sinking" and added that "without explicitly pointing to the prospect of delayed rate increases, her recitation of these risks gave her comments a downbeat undertone."
Which brings us to the only question that matters today: is a "downbeat undertone", aka bad news, good news for stocks once again, and will the market relapse to its old "bad news is great news" regime, or will it take advantage of today's brief European bank euphoria to sell the rally as it has throughout all of 2016?
We will fnd out shortly.
Full note from Hilsenrath via the WSJ:
Federal Reserve Chairwoman Janet Yellen flagged risks to the economic outlook that could delay the central bank's plans for raising short-term interest rates, in prepared remarks for her semiannual testimony to Congress on U.S. monetary policy.
Financial conditions have become less supportive of economic growth, stresses in China and other foreign economies could weigh further on the U.S., and market expectations for inflation are sinking, Ms. Yellen said, kicking off two days of testimony before House and Senate committees.
Without explicitly pointing to the prospect of delayed rate increases, her recitation of these risks gave her comments a downbeat undertone.
That in turn underscored the Fed's cautiousness about following through with additional short-term interest-rate increases after pushing them up in December. Before that move, the Fed had kept rates near zero for seven years.
"Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar, " Ms. Yellen said. "These developments, if they persist, could weigh on the outlook for economic activity and the labor market, although declines in longer-term interest rates and oil prices provide some offset."
When the Fed pushed short-term interest rates higher in December, officials penciled in four quarter-percentage-point rate increases for 2016. Investors have been skeptical of those projections, increasingly so in recent weeks.
The Fed's next policy meeting is March 15-16. Traders in futures markets see virtually no chance of a move then and just a 19% chance the Fed will move at all again this year, according to the Chicago Mercantile Exchange. The Fed's target for its benchmark federal-funds rate is between 0.25% and 0.5%.
In discussing the outlook for policy, Ms. Yellen stuck to the Fed’s recent description of its plans. The Fed, she said, “anticipates that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate,” effectively leaving further rate increases as an option. The Fed leader doesn’t want to get too far ahead of colleagues in signaling an outlook for rates.
Still, her focus on financial conditions, foreign uncertainty and inflation expectations showed that the bar has risen for further action. Fed officials pay particular attention to market and household expectations for where inflation is going. If their expectations for future inflation sink, it could become a self-fulfilling prophecy. The Fed doesn’t want more downward pressure on consumer prices because inflation has been running below its 2% objective for more than 3½ years.