Yellen's comments, her first significant post-FOMC meeting words leave some wondering if she is comfortable with as much as the market priced on March 19. Fixed income prices recovered following both a weaker than forecast Chicago PMI and Yellen's Headline comments:
- Yellen says decline is jobless “gradual but remarkable steady”
- Yellen says economy, job market “are back to normal health”
- Yellen says economy needs extraordinary support for “some time”
- Yellen says Fed takes its 2% inflation goal “very seriously”
- Yellen says Fed short of reaching employment and inflation goals
- Yellen sees “considerable slack” in economy and labor market
- Yellen says QE taper doesn't mean reduved stimulus commitment. We should remember however, that even as the Fed eventually moves from ZIRP, they can rightly claim that the Fed is providing "extraordinary support." We can even imagine that the Fed might eventually move Fed Funds policy rated above 'Taylor rule' suggested levels by pointing to the support provided by SOMA holdings. The market reaction to Yellen headline comments were knee-jerk and we might pay attention if the recovery in prices today does not hold. Generally speaking, there has been rather mild objection noted by Fed officials for post-FOMC price action. The post-FOMC meeting decline in U.S. fixed income prices does not speak too well of Fed transparency (again), but the reaction to current prices is not the cry we heard in mid-2013. My best guess at this stage is that usfi prices come weaker to finish the day, concentrating possibly on the prospects for a strong payroll report at weeks-end.