12 Feb 2016
Yellen’s Testimony: More heat than light – Nomura
Research Team at Nomura, notes that Yellen in her written testimony, noted that the economy slowed at the end of last year owing to weakness in net exports, investment in the oil and gas sector, and reduced inventory investment.
Key Quotes
“She also said, repeatedly, that the FOMC was monitoring financial conditions and developments abroad with an eye to assessing their impact on its outlook for economic growth, labor markets and inflation.
Yellen suggested that that the FOMC is unconvinced that the recent volatility in financial markets reflects a deterioration of economic fundamentals.
Yellen was asked about how tighter credit markets affect the FOMC’s outlook and she said that they were important. But she also said that they did not seem to have had a notable impact on economic activity so far.
The bottom line is that Yellen noted that a lot of things have happened since the Committee raised rates in December. In particular, the economy has slowed and financial conditions have tightened. Those factors, if they persist, are likely to have a significant impact on the outlook.
Yellen expressed some skepticism about whether the current state of financial conditions will persist, and what their ultimate impact on economic activity will prove to be. Nonetheless, it seems likely that the FOMC will not raise rates at its meeting in March. Given the fact that the market is not expecting the FOMC to raise rates at its next meeting, there was really no reason for Yellen to be more explicit about the FOMC’s near-term expectations.
At this point, the most important issue over the next month will be how incoming data and the performance of financial markets shape the FOMC’s outlook for the economy over the rest of the year, and the market’s expectations for policy.”
Key Quotes
“She also said, repeatedly, that the FOMC was monitoring financial conditions and developments abroad with an eye to assessing their impact on its outlook for economic growth, labor markets and inflation.
Yellen suggested that that the FOMC is unconvinced that the recent volatility in financial markets reflects a deterioration of economic fundamentals.
Yellen was asked about how tighter credit markets affect the FOMC’s outlook and she said that they were important. But she also said that they did not seem to have had a notable impact on economic activity so far.
The bottom line is that Yellen noted that a lot of things have happened since the Committee raised rates in December. In particular, the economy has slowed and financial conditions have tightened. Those factors, if they persist, are likely to have a significant impact on the outlook.
Yellen expressed some skepticism about whether the current state of financial conditions will persist, and what their ultimate impact on economic activity will prove to be. Nonetheless, it seems likely that the FOMC will not raise rates at its meeting in March. Given the fact that the market is not expecting the FOMC to raise rates at its next meeting, there was really no reason for Yellen to be more explicit about the FOMC’s near-term expectations.
At this point, the most important issue over the next month will be how incoming data and the performance of financial markets shape the FOMC’s outlook for the economy over the rest of the year, and the market’s expectations for policy.”