It took the headline scanning algos several minutes to read Yellen's speech, which the kneejerk reaction was to deem as more hawkish than expected, before they stumbled on the key section we pointed out earlier, and which unleashed a surge of buying because it hinted at even more potential QE in the future (under a different Fed chair):
On the monetary policy side, future policymakers might choose to consider some additional tools that have been employed by other central banks, though adding them to our toolkit would require a very careful weighing of costs and benefits and, in some cases, could require legislation. For example, future policymakers may wish to explore the possibility of purchasing a broader range of assets.
This section catalyzed such an aggressive buying impulse that it required Stan Fischer's post-speech interview to pour cold water on the market's enthusiasm, saying "Yellen's comments are consistent with a possible September hike." After all, as even Bullard admitted earlier, the Fed is perilously close to admitting stocks are in a bubble.
However, it was too late to appease one recently converted Fed critic, Bill Gross, who slammed Yellen’s suggestion that she could launch further asset purchases as the equivalent of “providing a walker or a wheelchair for an ailing economy.”
“She is opening the door to creating even greater asset bubbles as have the BOJ and ECB and SNB by purchasing corporate bonds and stocks,” Gross wrote Friday in an e-mail response to questions. “This is not capitalism. This is providing a walker or a wheelchair for an ailing economy. It may never walk normally again if monetary policy continues in this direction.”
In addition to slamming Yellen - as virtually everyone else has in recent weeks, including all the major banks and even the Fed's own mouthpiece at the WSJ, and as this site has done since 2009 - Bloomberg added that according to Gross, Yellen’s comments didn’t take a September rate hike off the table, especially if job growth is healthy. “To the extent that next month we see a decent job growth number, then I think for sure or close to for sure, you know, in September we’re going to see a Fed hike of 25 basis points,” Gross said in an interview on CNBC. “The market hadn’t expected that.”
This is particularly true if, as many have speculated, Yellen is now forcing rate hikes just so the economy stumbles, and she has the political cover to unleash even more easing; easing which as her own text warns, may include a "broader range of assets." In other words, the sooner the Fed hikes, the faster it will follow the BOJ and the ECB in monetizing stocks and corporate bonds, respectively.