Fed: Chair Yellen spoke but said nothing new - Nomura

Analysts at Nomura note that yesterday Federal Reserve Chair Yellen gave a speech, entitled “the Goals of Monetary Policy and How We Pursue Them,” and answered questions at the Commonwealth Club of San Francisco.

Key Quotes

“Overall, this was a very general speech and it provided very little new insight into her thinking on monetary policy, though her statements did appear to place herself in the middle of the FOMC distribution.” 

“She stated that “the economy is near maximum employment and inflation is moving toward our goal,” consistent with previous statements. Along those lines, she said that the long-run sustainable unemployment rate was about 4-4.75%, almost identical to the average of the past three months of 2017. She did note that broader measures of unemployment remain above their pre-recession levels. Further, her speech discussed the concept of the neutral rate. One reason why the neutral rate is so low (which she said was about 3%) is because of low productivity growth. The low neutral rate provides justification for why the FOMC has not been more aggressive in raising rates.” 

“In the questions and answers, she discussed the implications of an aging population, the effects of a stronger dollar, the size of banks and the risks they pose, and the interaction between the Fed and the Executive Branch. But for each of these areas, she spoke in broad terms, not saying anything provocative or noteworthy.” 

“Today’s speech may be different. At 8:00 p.m. EST, she is scheduled to give a speech at Stanford entitled, “The Economic Outlook and the Conduct of Monetary Policy.”  Perhaps at that event she will provide more color and details about the immediate decisions facing the FOMC. For instance, the minutes from the December FOMC meeting stated there was tremendous uncertainty surrounding fiscal policy and regulatory policy, two areas that could greatly affect the economic outlook. It will be interesting to see how she addresses this uncertainty, and that will provide some guidance in how the Committee may act in March when much of the uncertainty may still remain. Last, there’s also a small possibility that she could touch upon the Fed’s reinvestment policy.”