Yellen Speaks

...and its refreshing.

Madame Chair spoke in Chicago today (the text is on the FRB website as usual). The insta-pundit take away was extreme dovishness. Jefferies economist, Zervos, invoked Batman and deep dish pizza in an odd metaphor mix. The stock market was higher and the curve steepened back some. Of course, the neo-inflationists were appalled.

Greenspan loved dropping obscure anecdotal data into talks that would spur several months of cult following. Corrugated box prices, scrap metal and men's under wear all had spot light moments during Greenpan's long tenure. Bernanke faced a harsher reality. His timid, halting delivery did not exude confidence in listeners. Bernanke spent most of his time trying to explain a policy  they were clearly making up as they went. Lost among the critics outrage was that the flexibility was the policy's strongest pillar.

Enter Yellen, labeled a "Dove" throughout her long career. In Chicago, she tried to put a human face on the statistics. I did not hear a new easier tilt to her views. I was reminded of the old Fed policy of stating a bias. The bias, despite changing data, remains toward accommodation. A participant is free to take issue with that stance in the market, and good luck, but the tilt is openly expressed.  Tapering, Forward Guidance and Pressers are all just attempts - weak in my opinion - to clarify that stance.

The delicate switch that the Yellen Fed is undertaking behind that tilt is to return to a Rates Regime. Some recent "confusion" (as market movements are now called) comes from equating Regime change to policy bias change. That is incorrect. As we suggested in 2008, a CB should embrace "quantitative regimes" at inflationary/deflationary extremes and "rates" in the middle. The regime defines the methodology of policy execution, not the bias. So far, I think Yellen (the POTUS' 2nd choice btw) has proved the right choice.


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