Tuesday, 24 February 2015

Yellen testimony - hard not to conclude lower for longer

So let's get this right: Janet Yellen says that the Federal Reserve will be 'patient' before raising rates as: 

"too many Americans remain unemployed or underemployed, wage growth is still sluggish, and inflation remains well below our longer-run objective."

You cannot argue with that and hence 'lower for longer' still seems reasonable: 

I was also pleased to hear that Yellen not a proponent of chaining FOMC to any rule (such as Taylor rule) which might induce an early tightening...because as she herself noted some weak cyclical and structural issues have led to 'tepid wage growth' even if the lower oil price is a significant plus for the economy.  

To make this point take a look at the content of this tweet from @bespoke from earlier today: 

Fed Surveys for February vs Expectations:
Empire (New York) - Weaker
Richmond - Weaker
Philadelphia - Weaker
Dallas - Weaker

Hmm!  And then there is the market:


You can see what they mean: 

So what do we have?  In essence an economy where wages (or inflation) are not signalling yet in favour of  a rate rise but a stock market that remains firm in anticipation of continued (ultra) loose policy.  All's good then...but what about the earnings growth?

At least telecoms are showing positive YTD earnings revisions!

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