Yellen and the Fed Assessing Risk:
Testifying on the semi-annual monetary policy report before the House Financial Services Committee in Washington DC, Janet Yellen more than suggested that the balance of risks that confront the US economy are further shifting for the worse.
Of course it was only December, barely 2 months ago that the Fed raised its short term interest rates off zero, hoping to signal the beginning of a new rate raising cycle and return to the normalisation of monetary policy. Yellen described risks to the economy as balanced and that prospects for economic growth outweighed the negative risks surrounding raising rates too early.
But what a 2 months it has been. From January 1 onward, it has been day after day of problems, with the Yellen soon changing her rhetoric from ‘balanced’ and ‘positive outlook’, to ‘not being able to make a judgement in light of hard-to-discern global developments’.
“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.”
“These developments, if they persist, could weigh on the outlook for economic activity and the labour market, although declines in longer-term interest rates and oil prices provide some offset.”
It really is amazing to think that in such a short amount of time, the Fed can (be forced to?) change their mind so easily. We were talking about four more rate increases in 2016. FOUR! Now it is looking as though we’re not even going to get one, with bond market futures pricing only a 30% chance of the one hike in December.
In searching for a positive to balance out the negative sentiment in the blog, last Friday’s NFP result, including the drop in the unemployment rate and an increase in wages are still huge domestic positives for the Fed to grasp with both hands.
“Ongoing employment gains and faster wage growth should support the growth of real incomes and therefore consumer spending.”
As you were.
Chart of the Day:
Yellen was also quite upbeat on the state of oil markets and their effect on the economy was likely to be ‘transitory’.
With a new low in Oil, that’s nearly 6 months of no higher highs. In that 6 months, how many headlines have we had on single, bullish daily candles that Oil is recovering? Too many!
Oil is firmly in a bear market until it’s not!
On the Calendar Thursday:
JPY Bank Holiday
CNY Bank Holiday
USD Unemployment Claims
USD Fed Chair Yellen Testifies
“National Foundation Day is a national holiday in Japan celebrated annually on February 11, celebrating the foundation of Japan and the accession of its first emperor, Jimmu.”
Dane Williams – @VantageFX
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