Yellen is about to give balanced testimony

Monday, Feb 08 2016

When the Federal Reserve chair addresses lawmakers this week in Washington, she will have to strike a balance between sounding confident on the domestic economy and acknowledging increased risks from abroad. Two weeks after officials signaled interest rates may rise more slowly than previously expected, economists and investors will be trying to gauge Yellen’s willingness to delay tightening at the March meeting.

With financial market-turmoil causing uncertainty about the outlook, energy prices damping inflation and the European Central Bank preparing a stimulus boost that may bolster the dollar, the market-implied probability for a rate increase next month has dropped to 10 percent from more than 50 percent at the start of the year. Policy makers including Vice Chairman Stanley Fischer have cautioned that it’s still too soon to decide the next step.

“I don’t think we should expect Yellen to throw the towel on a March hike,” said Thomas Costerg, a senior U.S. economist at Standard Chartered Bank in New York. “She may emphasize the positives in the U.S. economy, particularly the still-strong labor market. Looking ahead, she may sound more cautious, and she will likely highlight that the negatives are mostly from abroad and that they are watching the global picture closely.”

Yellen is scheduled to appear before the House Financial Services Committee at 10 a.m. Wednesday and will address the Senate Banking Committee the next day. She’ll have evidence to support the Fed’s view that the U.S. labor market remains solid and wages are showing signs of picking up.

Source: Bloomberg.com

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