Yellen to testify, major event, to run hot or not, thai is the question? - BTM

Analysts at Bank of Tokyo Mitsubishi assess whether Yellen will still allow the economy to run hot since Trump won the elections.

Key Quotes:

"Chair Yellen will testify to the Joint Economic Committee of Congress on Thursday at 1500 GMT and this speech will be crucial not just for short-term market expectations in regard to the December FOMC but also in regard to longer-term expectations of monetary policy in circumstances of an aggressive fiscal stimulus program.

Will Yellen repeat her comment from October when she suggested allowing the economy to “run hot” in order to heal the economic growth problems?

That could mark a further acceleration in the steepening of the US yield curve as the market perceives this as the Fed pointing to allowing an inflation overshoot.

That message would also act to undermine the dollar. Expectations of real yields in the US would come down.

As we have stated before, higher inflation is only good for the dollar if investors assume the Fed will act to deal with it."