Fed Chair Yellen's First Congressional Testimony – Live Feed

We’ve seen the prepared remarks for both panels:

So this morning’s “Monetary Policy and the State of the Economy” should be a somewhat contentious baptism of fire for Janet as the Q&A starts.

 

 


    



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Fed Chair Yellen’s First Congressional Testimony – Live Feed

We’ve seen the prepared remarks for both panels:

So this morning’s “Monetary Policy and the State of the Economy” should be a somewhat contentious baptism of fire for Janet as the Q&A starts.

 

 


    



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These convicted felons are more resilient than the average Joe

systemfailure1 150x150 These convicted felons are more resilient than the average Joe

February 11, 2014
Sovereign Valley Farm, Chile

I’ve recently read about a program in California whereby inmates at San Quentin state prison plant organic gardens within the prison’s walls.

It’s an incredible irony that, in doing so, these convicted felons are achieving a level of resilience and security that many ‘free’ people on the outside have never realized.

Right now most people are totally reliant on the big system for basic necessities. Just ask any child where our food comes from– the grocery store, of course.

Little thought is given to the often thousand mile journey from field to fork. We simply show up and expect shelves fully stocked with food (or more appropriately, ‘food-like substances’).

We fuel our vehicles by going to the gas station. Again, very little thought is given to the rigor involved in extracting oil off the coast of some tinpot dictatorship, shipping it to a faraway refinery, and ultimately bringing it to the gas pump.

We flip the switch and the lights come on without regard for the complexities of power generation and transmission that start with pulling coal or uranium out of the ground.

We don’t give much thought to any of this because the system has been carefully refined over the decades. And for the most part it works.

Because of this success, we’ve grown to completely depend on it. Few people even know how to change their oil anymore.

On one hand, this is a remarkable achievement. Freed from the burden of growing our own food and fetching our own water, we have more time to specialize in what we do best.

On the other hand, there are serious vulnerabilities in this giant, complex system. We see this every time there is a natural disaster, weather anomaly, or spike in oil prices.

We can also see the cracks forming with the surge in pesticide-resistant ‘superbugs’, instances of major food contamination, and infrastructure failures (anyone remember last year’s Superbowl?)

But perhaps the greatest vulnerability is that this entire system– food, energy, the money supply, etc.– is ultimately controlled by a handful of people. As George Carlin said, “It’s a big club. And you ain’t in it… You and I are NOT in the big club.”

They decide everything– the quality and composition of the food we put in our bodies; the value of paper money; what chemicals go in the water supply… everything.

This effectively makes most people serfs, dependent and beholden to those who control the necessities.

It doesn’t have to be this way. And declaring your independence, or at least reducing your dependence on this system is one of the easiest things to do. You don’t have to be rich. You don’t need to be a rocket scientist. You don’t need a fancy degree.

You can make huge strides with something as simple as a tabletop garden… even just a handful of dirt in a styrofoam cup.

You don’t even need to spend money on seeds. Nearly every vegetable you’ve likely ever eaten already had seeds inside. You probably have a few hundred right now.

More advanced readers may want to consider purchasing a small plot of land and developing their resilience there. In parts of the world (like here in Chile), this can be done on the cheap.

In an inflationary environment where the central bankers who control the money supply are printing with reckless abandon, trading some of their paper currency for land makes a world of sense.

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Goldman’s Yellen Post-Mortem: A Snoozer

Today, Jan Hatzius was almost as fast as Jon Hilsenrath. Below is his Yellen post-mortem. Well, of her speech that is.

BOTTOM LINE: Fed Chair Yellen’s prepared remarks for her semiannual monetary policy testimony before the House Financial Services Committee were brief and did not contain any major surprises. The testimony itself will begin at 10:00am.

 

MAIN POINTS:

 

1. Yellen’s remarks highlighted the cumulative progress made in the labor market recovery, but also noted that “recovery in the labor market is far from complete” and that it is important to “consider more than the unemployment rate when evaluating the condition of the U.S. labor market.” These remarks suggest that Yellen views the labor market as having ample remaining slack.

 

2. She stated that inflation should move back towards 2% over coming years, and that some of the recent softness reflects factors that “seem likely to prove transitory, including falling prices for crude oil and declines in non-oil import prices.”

 

3. Yellen indicated that as long as incoming information is broadly consistent with the Committee’s expectations, it will likely reduce the pace of asset purchases in further measured steps at future meetings, although purchases are not on a preset course. She also reiterated that the 6.5% threshold is not an automatic trigger for higher rates, as Fed officials have often emphasized in the past.

 

4. With regard to recent developments, Yellen did not explicitly address the soft patch in US economic data since the start of the year, but did state that recent volatility in global financial markets did not seem to pose a substantial risk to the U.S. economic outlook “at this stage


    



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Goldman's Yellen Post-Mortem: A Snoozer

Today, Jan Hatzius was almost as fast as Jon Hilsenrath. Below is his Yellen post-mortem. Well, of her speech that is.

BOTTOM LINE: Fed Chair Yellen’s prepared remarks for her semiannual monetary policy testimony before the House Financial Services Committee were brief and did not contain any major surprises. The testimony itself will begin at 10:00am.

 

MAIN POINTS:

 

1. Yellen’s remarks highlighted the cumulative progress made in the labor market recovery, but also noted that “recovery in the labor market is far from complete” and that it is important to “consider more than the unemployment rate when evaluating the condition of the U.S. labor market.” These remarks suggest that Yellen views the labor market as having ample remaining slack.

 

2. She stated that inflation should move back towards 2% over coming years, and that some of the recent softness reflects factors that “seem likely to prove transitory, including falling prices for crude oil and declines in non-oil import prices.”

 

3. Yellen indicated that as long as incoming information is broadly consistent with the Committee’s expectations, it will likely reduce the pace of asset purchases in further measured steps at future meetings, although purchases are not on a preset course. She also reiterated that the 6.5% threshold is not an automatic trigger for higher rates, as Fed officials have often emphasized in the past.

 

4. With regard to recent developments, Yellen did not explicitly address the soft patch in US economic data since the start of the year, but did state that recent volatility in global financial markets did not seem to pose a substantial risk to the U.S. economic outlook “at this stage


    



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John Taylor’s Rebuttal Of Yellen: “There Is Little Evidence Monetary Policy Has Helped Economic Or Job Growth”

While Janet Yellen’s testimony will be uneventful, with her toeing the party line, and the fluff Q&A largely priced in – although everyone is eagerly looking forward to the Maxine Waters grilling –  far more interesting in today’s Monetary Policy and State of the Economy hearing, will be the Part 2, where various experts (full list here), mostly hawks as it would appear, will provide their rebuttals to Yellen’s views. None of them is more anticipated than John Taylor – the Stanford economist whose “rule” the Fed uses, even though Taylor himself has largely disavowed the implications of the Taylor rule under current “extraordinary” conditions and has become one of the most vocal opponents of the Fed’s unconventional policy. The punchline from his prepared remarks: “there is little evidence that the policy has helped economic growth or job growth. Growth has been less with the unconventional policies than the Fed originally forecast.” Or precisely what we have been saying for about 5 years.

Here are the rest of the key speech excerpts:.

While the unemployment rate has declined recently, much of the decline is due to an unusually large number of people dropping out of the labor force because of the weak recovery. It is good news that the inflation rate has averaged very close to the Fed’s 2 percent goal during the past decade, but by any measure the performance of the real economy has deteriorated compared to the previous two decades.

 

I have argued that the main cause of the poor performance is a significant shift in economic policy away from what worked reasonably well in the decades before. Broadly speaking, monetary policy, regulatory policy, and fiscal policy each became more discretionary, more interventionist, and less predictable starting in the years leading up to the financial crisis and have largely remained in that mode.

….

Many researchers have shown that the federal funds rate was unusually low during this 2003-2005 period compared with the Taylor rule (1993), which described monetary policy in the previous two decades, and that this deviation exacerbated the housing boom or encouraged risk taking, and eventually led to the housing bust and defaults, leaving risky assets on the balance sheets of many financial institutions. The financial crisis followed.

….

Though the intention of the majority of those at the Fed in favor of the policies was to stimulate the economy, there is little evidence that the policy has helped economic growth or job growth. Growth has been less with the unconventional policies than the Fed originally forecast. In the year since QE3 gained full steam at the end of 2012, interest rates on long-term Treasuries and mortgage backed securities have risen rather than fallen as was the intent of the policy.

….

These changes, anticipated changes, and time inconsistency of policy add to uncertainty. With the large magnitudes of the securities purchases, frequent changes in the policy, and little consensus on the impacts, there is no way that such a policy could be characterized as predictable or rules-based. For these reasons a number of policymakers inside the Fed have publically disagreed with the policies.

….

[T]he debate now appears to be not over whether such a rules-based policy should be adopted, but rather over when it should be adopted. The key question is whether or not we have returned to normal times, and if not, when we will return. In either case it would appear to be time to prepare.

* * *

The full remarks are below (link) and we certainlly anticipate this particular Q&A to be far more exciting than the 10 words per minute that will be the norm of all Yellen testimonies for the next several years.


    



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John Taylor's Rebuttal Of Yellen: "There Is Little Evidence Monetary Policy Has Helped Economic Or Job Growth"

While Janet Yellen’s testimony will be uneventful, with her toeing the party line, and the fluff Q&A largely priced in – although everyone is eagerly looking forward to the Maxine Waters grilling –  far more interesting in today’s Monetary Policy and State of the Economy hearing, will be the Part 2, where various experts (full list here), mostly hawks as it would appear, will provide their rebuttals to Yellen’s views. None of them is more anticipated than John Taylor – the Stanford economist whose “rule” the Fed uses, even though Taylor himself has largely disavowed the implications of the Taylor rule under current “extraordinary” conditions and has become one of the most vocal opponents of the Fed’s unconventional policy. The punchline from his prepared remarks: “there is little evidence that the policy has helped economic growth or job growth. Growth has been less with the unconventional policies than the Fed originally forecast.” Or precisely what we have been saying for about 5 years.

Here are the rest of the key speech excerpts:.

While the unemployment rate has declined recently, much of the decline is due to an unusually large number of people dropping out of the labor force because of the weak recovery. It is good news that the inflation rate has averaged very close to the Fed’s 2 percent goal during the past decade, but by any measure the performance of the real economy has deteriorated compared to the previous two decades.

 

I have argued that the main cause of the poor performance is a significant shift in economic policy away from what worked reasonably well in the decades before. Broadly speaking, monetary policy, regulatory policy, and fiscal policy each became more discretionary, more interventionist, and less predictable starting in the years leading up to the financial crisis and have largely remained in that mode.

….

Many researchers have shown that the federal funds rate was unusually low during this 2003-2005 period compared with the Taylor rule (1993), which described monetary policy in the previous two decades, and that this deviation exacerbated the housing boom or encouraged risk taking, and eventually led to the housing bust and defaults, leaving risky assets on the balance sheets of many financial institutions. The financial crisis followed.

….

Though the intention of the majority of those at the Fed in favor of the policies was to stimulate the economy, there is little evidence that the policy has helped economic growth or job growth. Growth has been less with the unconventional policies than the Fed originally forecast. In the year since QE3 gained full steam at the end of 2012, interest rates on long-term Treasuries and mortgage backed securities have risen rather than fallen as was the intent of the policy.

….

These changes, anticipated changes, and time inconsistency of policy add to uncertainty. With the large magnitudes of the securities purchases, frequent changes in the policy, and little consensus on the impacts, there is no way that such a policy could be characterized as predictable or rules-based. For these reasons a number of policymakers inside the Fed have publically disagreed with the policies.

….

[T]he debate now appears to be not over whether such a rules-based policy should be adopted, but rather over when it should be adopted. The key question is whether or not we have returned to normal times, and if not, when we will return. In either case it would appear to be time to prepare.

* * *

The full remarks are below (link) and we certainlly anticipate this particular Q&A to be far more exciting than the 10 words per minute that will be the norm of all Yellen testimonies for the next several years.


    



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The Yellen Reaction: Stocks Down, Gold Down, Bonds Frown

Treasury yields jumped 3-4bps higher on the release of the Yellen testimony but are rapidly reverting that loss. Gold and silver were double-slammed but gold remains above its late-day (pre-spike levels) from yesterday at $1280. Stocks and USDJPY entirely decoupled which must have shocked a lot of algos but having failed to ignite any momentum in stocks, USDJPY is now fading fast.

 

The machines lost control – USDJPY insta momentum ignition failed entirely and is now fading back under the pre-Yellen levels…

 

Gold was spanked but bounced off pre-close ramp levels from last night…

 

The initial sell in bonds is quickly reverting…

 

 

Charts: Bloomberg


    



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Janet Yellen: Fed To Stay The Course On Taper – Full Testimony

Just as Goldman has predicted (and the market had seemingly hoped would not happen), Janet Yellen, in her first speech as new Fed chair “stayed the course” on the Taper:

  • *YELLEN SAYS FOMC LIKELY TO CONTINUE QE TAPER IN MEASURED STEPS
  • *YELLEN SAYS RECOVERY IN LABOR MARKET IS `FAR FROM COMPLETE’
  • *YELLEN SAY FED TO `CONTINUE TO MONITOR FOR EMERGING RISKS’
  • *YELLEN: MAIN RATE LIKELY TO BE LOW WELL PAST 6.5% JOBLESS RATE

Of course, the Q&A (and hawkish follow-up panel) may well be the “common knowledge” setting moment for today but for now, the Taper is on and forward-guidance

Pre-Yellen: S&P Futs 1801, Gold $1285, 10Y 2.68%, USDJPY 102.3

 

On Growth…

*YELLEN PREDICTS MODERATE GROWTH IN ECONOMY, JOBS IN 2014, 2015
*YELLEN SAYS ECONOMY GAINED MORE TRACTION IN 2ND HALF 2013

On Inflation…

*YELLEN EXPECTS INFLATION TO MOVE TOWARD 2% `OVER COMING YEARS’
*YELLEN SAYS SOME SOFTNESS IN INFLATION LIKELY TO BE TRANSITORY

On Jobs…

*YELLEN SAYS `TOO MANY AMERICANS REMAIN UNEMPLOYED’
*YELLEN SAYS UNEMPLOYMENT RATE DOESN’T GIVE FULL VIEW OF JOBS
*YELLEN SAYS RECOVERY IN LABOR MARKET IS `FAR FROM COMPLETE’
*YELLEN: MAIN RATE LIKELY TO BE LOW WELL PAST 6.5% JOBLESS RATE
*YELLEN SAYS FOMC LIKELY TO CONTINUE QE TAPER IN MEASURED STEPS
*YELLEN REITERATES SHE `STRONGLY’ SUPPORTS CURRENT FOMC POLICY

On Taper

*YELLEN `COMMITTED TO ACHIEVING BOTH PARTS OF OUR DUAL MANDATE’
*YELLEN SEES `GREAT DEAL OF CONTINUITY’ IN MONETARY POLICY
*YELLEN SAYS BOND PURCHASES BY FED `NOT ON A PRESET COURSE’
*YELLEN: HIGHLY ACCOMMODATIVE POLICY APPROPRIATE AFTER QE ENDS

On EM Risks…

*YELLEN: GLOBAL MARKET SHIFTS NOT A BIG RISK TO U.S. OUTLOOK
*YELLEN SAY FED TO `CONTINUE TO MONITOR FOR EMERGING RISKS’

 

Wordcloud of Yellen’s speech:

Full prepared remarks (pdf)


    



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Another Fed “Taper” Casualty: Kazakhstan Devalues Currency To Weakest On Record

With only $24.5 billion left in FX reserves after valiantly defending major capital outflows since the Fed’s Taper announcement, the Kazakhstan central bank has devalued the currency (Tenge) by 19% – its largest adjustment since 2009. At 185 KZT to the USD, this is the weakest the currency has ever been as the central bank cites weakness in the Russian Ruble and “speculation” against its currency as drivers of the outflows (which will be “exhausted” by this devaluation according to the bank). The new level will improve the country’s competitiveness (they are potassium heavy) but one wonders whether, unless Yellen folds whether it will help the outflows at all.

 

 

Charts: Bloomberg


    



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