Yellen: Fed to start reducing balance sheet this year - ANZ

Analysts at ANZ explain that there wasn’t too much to take away from Fed Chair Yellen’s testimony to Congress and as already well-signalled, the Fed anticipates it will start reducing its balance sheet “this year” and that the funds rates “would not have to rise all that much further” to get to a more neutral level.

Key Quotes

“However, the market jumped on her views on inflation, where she noted that lower inflation was only “partly the result” of declines in certain categories of inflation (pharma and cell phones), compared to previous statements that placed more weight on these transitory forces. While she also noted that “it is premature to reach the judgment that we are not on the path to 2% inflation over the next couple of years”, there does seem to be a little more second guessing going on. All eyes will certainly be on Friday night’s CPI figures.”