Economists are reading Janet Yellen’s tea leaves on monetary policy

Finance


Federal Reserve Chair Janet Yellen has been scrupulously avoiding discussion of specific details on the future of monetary policy, leaving economists to draw inferences from her sentiments about the health of the overall economy.

“If you hear Janet Yellen say something like, ‘Well, gee, we really don’t think that lending has grown excessively,’ that’s a good sign for the markets,” said Paul Christopher, head global market strategist for Wells Fargo.

Christopher said that such a seemingly banal statement would imply that “liquidity is not considered excessive, therefore rate hikes will not be aggressive, and therefore the market can return to the focus and the consensus — strong consensus — that there’s going to be a very gradual pace to rate hikes.”

He also said the hikes could slow to such a pace that the next intervention won’t take place until 2018. “So that’s going to be a reason for the market to rise here,” he said.

In her remarks at a conference in Jackson Hole, Wyoming, on Friday, Yellen cautioned against risk-taking in financial markets.

“Any adjustments to the regulatory framework should be modest and preserve the increase in resilience at large dealers and banks associated with the reforms put in place in recent years,” she said.



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