Monday, June 6, 2016
Yellen - Never So Much Emphasis on Uncertainty
In her June 6th World Affairs Council appearance Fed Chair Yellen made extraordinary efforts to indicate that nothing in our economic future is clear, that the outlook is uncertain in the extreme and that every effort made by the Fed to understand current conditions is highly adjustable based on forthcoming economic data. Although the Fed has always acted under data dependent guidelines, it has never been so ‘in your face’ about how uncertain it is in the validity of their current mode of thinking.
Some of us came into financial markets careers under conditions that included a rather quiet Fed that when providing any information at all, was cautious in presenting such output as definitive. While few are comforted with the notion that the future holds no certainties, Yellen seemed today to want to remove any lasting visage that the Fed can make visible any large chunk of future Fed policy timeline.
Policy path guidance has been largely absent since the tapering of additional securities purchases concluded in October 2014. Economic agents have a very strong hunger for that visibility policy path guidance provides. Intended or not, Yellen made abundantly clear today that the Fed has no policy path guidance to offer at this stage. If financial markets are as fragile as some fear, Yellen’s message today should loosen hinges that hold the framework together, creating conditions for additional risk-off.
Conversely, if market participants show an ability to adjust to reduced Fed-provided monetary policy visibility, maybe it will indicate that the time is right for corporate leaders to take off the training wheels on business investment. Watch S&P 500 Index settle today for risk-on/off vote.