With world markets begging for moar, Janet Yellen's prepared Humphrey-Hawkins Testimony was a disappointment:
- *YELLEN: FED EXPECTS ECONOMY TO WARRANT ONLY GRADUAL RATE RISES (everything is fine)
- *YELLEN: JOB, WAGE GAINS SHOULD SUPPORT INCOMES AND SPENDING (everything is awesome)
- *FED REPORT: LEVERAGE RISKS IN FINANCIAL SECTOR `REMAIN LOW' (so don't worry about banks)
- *YELLEN: FINANCIAL STRAINS COULD WEIGH ON OUTLOOK IF PERSISTENT (so, there's chance)
The bottom line this is simply a rerhash of the Jan FOMC Statement and does not offer enouigh dovishness for the market.
As we detailed last night, Citi's chief FX strategist Englander hinted at what would be Yellen's "Draghi Moment":
The dovish surprise is if she explicitly removes March from the hiking calendar (which would be Draghi-esque in front running the FOMC), broadly hints at a delay or expresses concern on downside risk to long term inflation or structural stagnation. The intention would be to show US households, business and investors that the Fed has their back.
This is not what she offered, and markets are disappointed. In fact, the most dovish Yellen went was to mention stocks and tightening financial conditions:
Yellen also admitted once more that the Fed's engaged in policy error:
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... In the fourth quarter of last year, growth in the gross domestic product is reported to have slowed more sharply, to an annual rate of just 3/4 percent; again, growth was held back by weak net exports as well as by a negative contribution from inventory investment
- *YELLEN: U.S. FINANCIAL CONDITIONS HAVE BECOME LESS SUPPORTIVE
- *YELLEN: LOWER OIL, LONG-TERM BORROWING COSTS PROVIDE OFFSET
- *YELLEN: GLOBAL ECONOMIC GROWTH SHOULD PICK UP OVER TIME
- *YELLEN: RECENT INDICATORS DON'T SUGGEST SHARP SLOWDOWN IN CHINA
- *YELLEN: YUAN DROP MAKES CHINA FX POLICY, OUTLOOK MORE UNCERTAIN
- *FED: SOME LEVERAGED LOANS STILL SHORT OF SUPERVISOR STANDARDS
And finally some hope:
- *YELLEN: `MONETARY POLICY IS BY NO MEANS ON A PRESET COURSE'
However, this is offset by the ongoing undercurrent of optimism:
the Committee expects that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in coming years and that labor market indicators will continue to strengthen
And here is why Yellen is trapped:
- WTI CRUDE ERASES GAINS AS FED'S YELLEN WARNS OF GROWTH RISKS
In other words, assets fall on admission the economy is slowing, and assets would certainly fall if the Fed continues its hiking cycle without relent.
Indeed, if one had to summarize Yellen's message to the S&P, it would probably look as follows: "you haven't dropped enough for the Fed to change course."
And now we look forward to the Q&A in over an hour.
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Full statement (pdf link):