US Fed Chairwoman Yellen speaks ..... Of course rates are going up, but she's sounding a little doveish

Thursday 18th June 2015

 

NOTE : WITH GREECE GAINING BLANKET COVERAGE ACROSS BOTH FRONT PAGES AND BUSINESS SECTIONS TODAY, NOT TO MENTION ALL OTHER MEDIA OUTLETS, WE'LL HOLD FIRE ON THIS FOR AT LEAST ANOTHER 24HRS UNTIL THE OUTCOME OF TODAY'S MEETING OF EUROZONE FINANCE MINISTERS IS CONCLUDED  --  ALTHOUGH ONLY THE WILDEST OPTIMIST COULD HOPE FOR ANYTHING POSITIVE. THAT GREEK PM TSIPRAS IS VISITING RUSSIA TODAY IS ENTIRELY COINCIDENTAL, APPARENTLY.

 

US Fed Chairwoman Yellen speaks ..... Of course rates are going up, but she's sounding a little doveish 

"Yellen points to gradual rate rises" , The Financial Times online

First, the Fed's forecasts :

2015 GDP growth scaled back to 1.8 - 2.0% (from 2.3 - 2.7%)  --  fully expected after a dismally weak first quarter

2016 and 2016 GDP growth little changed at 2.4 - 2.7% and 2.1 - 2.5% respectively

2015 Unemployment rate predicted at 5.2 - 5.3%, up from 5.0 - 5.2% previously

Inflation predictions broadly unchanged ..... 1.9 - 2.0% by 2017

What do the numbers mean for rate expectations ? Well, as ever different things to different people but more importantly the tone of Ms Yellen's speech is being seen as mildly doveish, suggesting that more evidence of labour market pressures and inflation will be needed before  longer term upward hikes would be required. But any clues as to the timing of the initial move ?

The so-called "dot-plot" , beloved of market commentators and TV pundits alike, shows that on average the 17 members of the Fed's Open Market Committee still see a year-end Fed Funds rate of 0.625%. That would necessitate two moves this year, say September and December, but the number of committee members advocating just the one move has grown since March to five. The big market players seem to be split on the issue, but interestingly Goldman Sachs have this morning pushed back their forecast for the first move to December. 

Last month Ms Yellen said that given the time-lag involved in adjusting monetary policy and its effects on things like employment levels and inflation, the Fed could not afford to wait for data to show that targets had been hit before tightening. That's true, but yesterday's words implied that she at least wants to see greater evidence of it.

 All of which leaves the market little clearer as to the timing of the first move. Ms Yellen's stated desire is that we should stop obsessing about that and concentrate on the longer picture. She's being disingenuous, surely ? She must know that there's little hope of that.