Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
As the unofficial mouthpiece of the Fed, the Wall Street Journal’s Jon Hilsenrath is must read theater. After Yellen’s speech last night he says:
Against that backdrop, officials seem unlikely to want to veer from the low-rates-to-2014 forecast that the central bank has been making since January. At the same time, it appears unlikely that the Fed is anywhere near being prepared to launch additional easing efforts.
If this is the stance thru Apr 24-25 and Bernanke makes no additional move in a ‘more easing direction’ around that time, the market reaction should be very interesting. There is about a 7 week window between that meeting and the June 20th Fed meeting. The Fed loves to telegraph intentions well in advance so for those expecting more easing (hand raised) clues should be not so discreetly dropped sometime in that window.
More from the story:
- Despite encouraging news on job growth in recent months, “labor market slack will remain substantial for a number of years to come,” Fed Vice Chairwoman Janet Yellen argued in a speech in New York on Wednesday evening. That, and an expectation of subdued inflation, have justified the Fed’s plan to keep short-term interest rates near zero until late 2014, Ms. Yellen said in an elaborate defense of the Fed’s approach. Some of the Fed’s internal economic models, in fact, suggested rates should stay low for even longer than planned, she noted.
- “Further easing actions could be warranted if the recovery proceeds at a slower-than-expected pace,” she added, though she took a balanced approach to the question of even easier-money policies by noting that a faster-than-expected recovery could warrant credit tightening sooner than expected.
- Financial markets have see-sawed in recent weeks as investors have tried to discern whether the Fed wants to launch a new bond-buying program, known as quantitative easing. Ms. Yellen laid out one scenario in which she believed such a program might be warranted—if the unemployment rate, which was 8.2% in March, seems unlikely to drop below 8% by 2014. But the Fed isn’t forecasting that scenario, and Ms. Yellen clearly wasn’t advocating more bond-buying now.
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