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25 Feb 2015
Yellen facilitating a shift from data-specific to data-driven guidance – BBH
FXStreet (Barcelona) - The Brown Brothers Harriman Team reviews yesterday’s Yellen’s speech, and conclude that the Fed would be surprised with the dovish market reaction post the testimony, with the Fed Chair facilitating a shift from data-specific to data-driven guidance.
Key Quotes
“The more we reviewed Yellen's remarks, the more we are convinced that the Chair is preparing investors for a change in the forward guidance at the next meeting in the middle of March.”
“She is facilitating a shift from date-specific to data-driven guidance.”
“In particular, we are struck by her effort to push back against the doves arguments about inflation being too low and the global headwinds being too strong.”
“She specifically argued that the decline in oil prices were not only depressing headline inflation, but also bleeding into the core rate. She reiterated that the inflation impact from falling energy prices was temporary.”
“On the other score, Yellen did not argue that US was immune to global developments. Instead, she suggested that the forces were broadly neutral.”
“The drop in oil prices and the downward pressure on interest rates was offset by the rise in the dollar. Yellen specifically said that domestic demand and spending were sufficiently strong to put the US economic recovery on firm footing.”
“Yellen delivers the same prepared remarks to the House Financial Services Committee. The questions from the Representatives will be different, but her answers will be the same.”
“Past Chairs often appeared to use the second day of testimony to try to help clarify the delivered remarks if they thought the market's reaction was not in the direction that it wanted. We suspect that Fed officials were just as surprised as us with the dovish market reaction.”
Key Quotes
“The more we reviewed Yellen's remarks, the more we are convinced that the Chair is preparing investors for a change in the forward guidance at the next meeting in the middle of March.”
“She is facilitating a shift from date-specific to data-driven guidance.”
“In particular, we are struck by her effort to push back against the doves arguments about inflation being too low and the global headwinds being too strong.”
“She specifically argued that the decline in oil prices were not only depressing headline inflation, but also bleeding into the core rate. She reiterated that the inflation impact from falling energy prices was temporary.”
“On the other score, Yellen did not argue that US was immune to global developments. Instead, she suggested that the forces were broadly neutral.”
“The drop in oil prices and the downward pressure on interest rates was offset by the rise in the dollar. Yellen specifically said that domestic demand and spending were sufficiently strong to put the US economic recovery on firm footing.”
“Yellen delivers the same prepared remarks to the House Financial Services Committee. The questions from the Representatives will be different, but her answers will be the same.”
“Past Chairs often appeared to use the second day of testimony to try to help clarify the delivered remarks if they thought the market's reaction was not in the direction that it wanted. We suspect that Fed officials were just as surprised as us with the dovish market reaction.”