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24 Feb 2015
Risks are for a more hawkish Yellen – KBC
FXStreet (Barcelona) - The KBC Bank Research Team, explain the two communication challenges Yellen might face in today’s testimony, further adding that risks are skewed for a more hawkish Yellen.
Key Quotes
“Fed chair Yellen will give her semi-annual Testimony to the Senate Banking Committee today.The markets will anxiously listen for a clue about the timing of the lift-off and clues about the nature of the cycle.”
“She has several communication challenges. First, she needs to massage investors’ interpretation of what will happen when the Fed drops the word “patient” from its post-meeting statement, which we think may happen as soon as during the March meeting.”
“We think investors should become prepared for a post-crisis Fed policy that can raise or lower rates at any meeting, as used to be the case before the current era of zero rates.”
“A second and possibly greater challenge facing Ms. Yellen and the Fed will be to more clearly define what the tightening cycle will likely look like in a post-zero-rate world.”
“While the Fed said that both unemployment rate and inflation are equally important objectives of their dual mandate, according to most economists inflation lags activity (and thus labour market developments).”
“Therefore, we might see the Fed de facto give greater importance to the labour markets which according to their own forecasts will reach full employment soon. So, we would think risks are for a more hawkish Yellen.”
Key Quotes
“Fed chair Yellen will give her semi-annual Testimony to the Senate Banking Committee today.The markets will anxiously listen for a clue about the timing of the lift-off and clues about the nature of the cycle.”
“She has several communication challenges. First, she needs to massage investors’ interpretation of what will happen when the Fed drops the word “patient” from its post-meeting statement, which we think may happen as soon as during the March meeting.”
“We think investors should become prepared for a post-crisis Fed policy that can raise or lower rates at any meeting, as used to be the case before the current era of zero rates.”
“A second and possibly greater challenge facing Ms. Yellen and the Fed will be to more clearly define what the tightening cycle will likely look like in a post-zero-rate world.”
“While the Fed said that both unemployment rate and inflation are equally important objectives of their dual mandate, according to most economists inflation lags activity (and thus labour market developments).”
“Therefore, we might see the Fed de facto give greater importance to the labour markets which according to their own forecasts will reach full employment soon. So, we would think risks are for a more hawkish Yellen.”