It seems markets have priced the odds of tapering for now. Janet Yellen’s dovish testimony last night was enough to give the S&P a little boost (for another record high) and gold too, but long bond yields barely budged, down a pip or so. But the US dollar rose slightly and the Australian dollar very nearly fell through its 92.8 cents support before rebounding weakly. It still looks vulnerable to me.
Here’s Janet:
Pretty unequivocal stuff. Zero Hedge has a neat breakdown of other comments:
Dovish
*YELLEN SAYS SHE WOULD BE STRONGLY COMMITTED TO PROMOTE RECOVERY
*YELLEN SAYS JOBLESS RATE REMAINS HIGH
*YELLEN SAYS LONG PERIODS OF UNEMPLOYMENT `PARTICULARLY PAINFUL’
*YELLEN SAYS BENEFITS OF QE STILL EXCEED THE COSTS *YELLEN: MUST NOT REMOVE SUPPORT WHILE RECOVERY IS `FRAGILE’ *YELLEN SAYS IT’S IMPORTANT NOT TO REMOVE SUPPORT TOO SOON
*YELLEN SAYS FOMC COMMITTED TO 2 PERCENT INFLATION GOAL
*YELLEN SAYS LOWER MORTGAGE RATES KEY TO HELPING HOUSING RECOVER
*YELLEN SEES `NO SET TIME’ FOR TAPERING QE
*YELLEN SAYS WEAK DEMAND IS `A MAJOR DRAG’ ON ECONOMY *YELLEN SAYS FED DOESN’T SEE BUILDUP OF FINANCIAL RISKS *YELLEN SEES LIMITED EVIDENCE OF `REACH FOR YIELD’ *YELLEN SAYS FED DOESN’T SEE BROAD BUILD-UP OF LEVERAGE *YELLEN DOESN’T SEE `MISALIGNMENTS’ IN ASSET PRICES
*YELLEN SAYS BROADER UNEMPLOYMENT GAUGES HIGHER THAN 7.3 PERCENT
*YELLEN SAYS POLICY AIMED TO `BROADLY BENEFIT ALL AMERICANS’
*YELLEN SAYS RECOVERY HAS BEEN `DISAPPOINTING’
*YELLEN WOULDN’T SUPPORT ANY REDUCTION IN FED POLICY LEEWAY
*YELLEN SAYS ECONOMY HAS SUFFERED A DRAG FROM FISCAL POLICY *YELLEN SAYS STIMULUS BOOST TO HOME PRICES `BROADLY BENEFICIAL’
*YELLEN: FED NEEDS TO TAKE INTO ACCOUNT POLICY IMPACT ON MARKETS
*YELLEN SAYS NORMAL ECONOMY WILL RESTORE `NORMAL RATES’
*YELLEN SAYS FED WILL TRY TO MITIGATE INTEREST RATE RISK
*YELLEN SAYS FISCAL POLICY HAS WORKED AGAINST MONETARY POLICY
*YELLEN SAYS FED `WORRIED ABOUT A FRAGILE RECOVERY’
*YELLEN SAYS FED VERY FOCUSED ON ACHIEVING DUAL MANDATE *YELLEN SAYS FED INTENT ON AVOIDING DEFLATION
*YELLEN SAYS FED MADE PROGRESS ON EMPLOYMENT, `NOT THERE YET’ *YELLEN DOESN’T SEE ASSET BUBBLE IN HOUSING PRICES
*YELLEN SAYS LOW INTEREST RATES WILL GET ECONOMY BACK TO NORMAL
*YELLEN SAYS SAVERS HAVE BROADER ARRAY OF INTERESTS IN ECONOMY
*YELLEN SAYS SHE’D LIKE TO SEE JOB MARKET RECOVER MORE RAPIDLY
Hawkish *YELLEN SEEKS `SUBSTANTIAL IMPROVEMENT’ IN LABOR MARKET OUTLOOK
*YELLEN SEEKS `STRONG’ AND ROBUST RECOVERY
*YELLEN: FOMC HAS TOOLS TO REMOVE STIMULUS TO LIMIT INFLATION
*YELLEN SEES `IMPROVEMENT IN THE LABOR MARKET’ *YELLEN SAYS QE `CANNOT CONTINUE FOREVER’ *YELLEN SAYS FED TAKES RISKS OF QE `VERY SERIOUSLY’ *YELLEN SAYS FOMC UNDERSTANDS RISKS THE LONGER QE CONTINUES
*YELLEN SAYS `WE ARE EXPECTING CONTINUED PROGRESS GOING FORWARD’
*YELLEN SAYS FED NEEDS TO MONITOR POTENTIAL FINANCIAL RISKS
*YELLEN SAYS FED LOOKS OUT FOR ANY POTENTIAL ASSET PRICE BUBBLES
*YELLEN: MONETARY POLICY A `BLUNT TOOL’ AGAINST ASSET BUBBLES
*YELLEN SAYS LOW RATES `CAN INDUCE RISKY BEHAVIOR’
*YELLEN WOULDN’T RULE OUT MONETARY POLICY TO FIX MISALIGNMENTS
*YELLEN: FED TO ENSURE BIG BANKS HOLD MORE, BETTER CAPITAL *YELLEN EXPECTS GROWTH RATE TO PICK UP
*YELLEN SAYS SHE SUPPORTED AS MANY AS 27 MAIN RATE INCREASES *YELLEN SAYS FED HAS TOOLS TO AVERT EMERGENCE OF ASSET BUBBLE
*YELLEN SAYS FED NEEDS TO WATCH INVESTMENT IN REAL ESTATE
On QE *YELLEN SEES `DANGERS’ ON BOTH SIDES OF ENDING QE TOO EARLY
*YELLEN SAYS QE HAS MADE `MEANINGFUL CONTRIBUTION’ TO GROWTH
*YELLEN SAYS QE HAS HELPED PUSH DOWN INTEREST RATES
*YELLEN SAYS LOWER INTEREST RATES HELPING HOMEOWNERS
*YELLEN SAYS QE IS NOT AIMED AT HELPING TO FINANCE U.S. DEFICIT *YELLEN SAYS POLICY HAS BOOSTED STOCKS `TO SOME EXTENT’
*YELLEN SAYS FED SHOULD NEVER BE `A PRISONER OF THE MARKETS’
*YELLEN SAYS `SAVERS ARE HURT’ BY LOW INTEREST RATE POLICY
But Never expected QE to work…
*YELLEN SAYS FOMC LAST YEAR EXPECTED LITTLE PROGRESS ON JOBS
On Supervision
*YELLEN SAYS EXTREMELY IMPORTANT FOR BANKS TO HAVE MORE CAPITAL
*YELLEN SAYS FED `VERY FOCUSED’ ON BROAD FINANCAIL STABILITY
*YELLEN SAYS ADDRESSING TOO-BIG-TO-FAIL AMONG TOP GOALS
*YELLEN SAYS U.S. WILL RAISE CAPITAL STANDARDS FOR BIG BANKS *YELLEN SAYS TOO-BIG-TO-FAIL FIRMS GET DE FACTO SUBSIDY
*YELLEN: U.S. FINANCIAL SYSTEM SAFER, SOUNDER THAN PRE-CRISIS
*YELLEN: FED IN COMPREHENSIVE REVIEW OF BANK COMMODITY ACTIVITY
*YELLEN SAYS FED `RAMPING UP’ MONITORING OF FINANCIAL STABILITY
*YELLEN SAYS FED `MASSIVELY REVAMPED’ SUPERVISION OF BIG BANKS
*YELLEN SAYS SUPERVISION JUST AS IMPORTANT AS MONETARY POLICY
On Jobs *YELLEN SAYS FULL EMPLOYMENT RANGES FROM 5 PERCENT TO 6 PERCENT
*YELLEN SAYS `ALL TOO MANY PEOPLE’ HAVE LEFT LABOR FORCE
*YELLEN SEES `WIDENING WAGE INEQUALITY’ SINCE MID-1980S
*YELLEN SAYS FED POLICIES `MEANT TO GENERATE A ROBUST RECOVERY’
*YELLEN SAYS SHE’D LIKE TO SEE JOB MARKET RECOVER MORE RAPIDLY
*YELLEN SAYS FASTER U.S. GROWTH WOULD BUOY JOB MARKET *YELLEN SAYS INCOME INEQUALITY `VERY SERIOUS PROBLEM’ *YELLEN SAYS `MANY THINGS’ AT ROOT OF INCOME INEQUALITY
*YELLEN SAYS `ROBUST RECOVERY’ WOULD HELP MITIGATE INEQUALITY
And On Gold… *YELLEN: NO ONE HAS A GOOD MODEL ON WHAT INFLUENCES GOLD PRICES
*YELLEN SAYS GOLD OFTEN USED AS A HAVEN AGAINST RISK
Other
*YELLEN SAYS FOMC REGULARLY ASSESSES GROWTH, JOBS PROGRESS
*YELLEN SAYS SHE HOPES FOR STRONGER WAGE GROWTH
*YELLEN SAYS SHE STRONGLY SUPPORTS TRANSPARENCY AT FED
*YELLEN SAYS FED NEEDS TO RETAIN POLICY INDEPENDENCE *YELLEN: FED SHOULD BE FREE OF `SHORT-TERM POLITICAL PRESSURES’
*YELLEN SAYS FED WILL WITHDRAW STIMULUS WHILE SUSTAINING GROWTH
*YELLEN SAYS DEFICIT REDUCTION SHOULD FOCUS ON MEDIUM-TERM GAINS
*YELLEN FAVORS FISCAL POLICY THAT `DID NO HARM’
*YELLEN SAYS U.S. DEBT DEFAULT WOULD BE CATASTROPHIC *YELLEN SAYS FISCAL SUSTAINABILITY A CRITICAL GOAL
In the week ending November 9, the advance figure for seasonally adjusted initial claims was 339,000, a decrease of 2,000 from the previous week’s revised figure of 341,000. The 4-week moving average was 344,000, a decrease of 5,750 from the previous week’s revised average of 349,750.
Aggregate consumer debt increased in the third quarter by $127 billion, the largest increase seen since the first quarter of 2008. As of September 30, 2013, total consumer indebtedness was $11.28 trillion, up by 1.1% from its level in the second quarter of 2013. Overall consumer debt remains 11% below its peak of $12.68 trillion in 2008Q3.
Mortgages, the largest component of household debt, increased by 0.7% in the third quarter of 2013. Mortgage balances shown on consumer credit reports stand at $7.90 trillion, up by $56 billion from their level in the second quarter. Balances on home equity lines of credit (HELOC) dropped by $5 billion (0.9%) and now stand at $535 billion. Household non-housing debt balances increased by 2.7%, with gains of $31 billion in auto loan balances, $33 billion in student loan balances, and $4 billion in credit card balances.
In summary, QE for this year is off the table, if it was ever on it. In fact, what the testimony does do, I think, is take QE off the table until Janet Yellen assumes the job in March. I would expect her to take a meeting or two to bed down so April/May looks the earliest to me.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
