Fed: It’s all about Yellen today - Rabobank

Michael Every, Head of Financial Markets Research at Rabobank, suggests that in an important development Fed Chair Janet Yellen will give her semi-annual testimony at the Senate, complete with Q&A.

Key Quotes

“She faces the tricky task of trying to reassure everyone there that the US economy is doing just fine, while showing sympathy for those who feel that it isn’t. Moreover, she needs to explain how despite indicators such as GDPNow pointing to a Q2 growth rebound; and very low headline unemployment; and a pick-up in core inflation; and apparent stability in China; and a recovery in oil prices, she managed to shift from a view of ‘four rate hikes’ in 2016 in January to just ‘two hikes’ in March, and then towards ‘one hike’ (if one looks at the underlying dot plot skew) in June.

In short, what does she know now that she didn’t know back then when most data are still on track? (Save one payrolls print.) How could her projections be so wrong? Has she shared a Bullard-esque Damascene conversion and grasped that the Fed isn’t any different from the RBNZ fundamentally? Does she grasp that this isn’t 1992 anymore, Toto, but 2016, where one can’t raise rates against a global backdrop where everyone else is slashing them? The Fed’s credibility will need to be vociferously defended without seeing the USD spike unduly.”