US: Yellen’s testimony painted easonably upbeat assessment of the economy - ANZ

Research Team at ANZ, notes that the Fed Chair Yellen’s testimony to the Joint Economic Committee painted a reasonably upbeat assessment of the economy, but one where rate increases would be gradual.

Key Quotes

“Of more interest though was her response to questions on the impact of the election outcome. Yellen acknowledged that markets have moved to factor in higher growth and inflation – and therefore a higher fed funds rate profile – on the back of proposed fiscal expansion, but the Fed was not ready to change its views yet. More information was needed. And that seems sensible. While the President elect’s policies may prove to be growth-enhancing and inflationary in time, markets have moved on very little information.”

“There remain numerous questions over the policy detail and appetite for fiscal expansion from the rest of the legislature. When the fiscal landscape becomes known, the Fed’s assessment will change, but until then it is waiting to see what happens. And in some ways, markets look like they are shifting a little that way too. The fixed income sell-off has slowed. We think markets have moved sufficiently for now, with some pause for reflection warranted.”