The key details
On Tuesday, Federal Reserve Chairman Janet Yellen speaks to the House is the first day of the two-day semi-annual Humphrey Hawkins. She begins her prepared remarks at 1500 GMT but he speech will be released online at 1330 GMT (8:30 am ET).
Janet Yellen waving hello to a friend
To get a sense of what Yellen will say, envision what she would like to accomplish.
Job #1: Don’t make any mistakes
This is Yellen’s first Humphrey Hawkins. She did an excellent job in her confirmation hearing but Congress might ratchet up the intensity this time around. He first goal will to avoid sending markets confusing messages.
Likelihood of success: 90%
Job #2: Tapering doesn’t mean tightening
The Fed has been hard at work to disassociate the start of the taper from a commitment to raise rates once bond purchases are halted. It’s been a team effort with virtually every Fed member pitching in.
Likelihood of success: 95%
Job 3: The 6.5% problem
The FOMC statement reads:
The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal.
In Friday’s non-farm payrolls report, unemployment fell to 6.6% and if the participation rate hadn’t risen two ticks, it would be at 6.5%.
The Fed’s forward guidance certainly doesn’t require a hike and the ‘well past’ portion is indeterminate but it will be difficult for the Fed to manage expectations once that marker is touched. The Fed is reluctant to change the 6.5% number because it would damage credibility. Another way to move the goal posts is by moving the focus to inflation.
Likelihood of success: 50%, she may try to avoid the tricky topic.
