Federal Reserve chief Janet Yellen met with US legislative body as part of periodical testimony in Capitol Hill on Tuesday and Wednesday. She once again reiterated that the Fed may hike rates later this year if the economy continue on the road to improvement.

Federal Reserve chief Janet Yellen met with US legislative body as part of periodical testimony in Capitol Hill on Tuesday and Wednesday (24-25 February 2015). In the occasion, she once again reiterated that the Fed may hike rates later this year if the economy continue on the road to improvement. However, US Dollars slumped afterward because Yellen also stated their intention to monitor the economy further before making the final decision. 
 

Janet


The Fed Chief statements as the head of the forefront central bank in the world have often became game changer. That, in addition to the relaxed tension around Grexit after Greek 4-months bailout extension proposal accepted by the Euro, stifled Dollar for some time. What other things have Yellen talked in her testimonial? Here some of the most notables.
 

1. Job Market Has Improved, But It Needs More

Janet Yellen considers US job market has improved and long-term unemployment has decreased substantially. Nevertheless, she thinks that there are still some things that left behind, that is the less-than-expected labor force participation rate and wage growth.
 

2. Fed Objective Is To Reach Inflation Target

When asked by Senator from Ney York about how the Fed consider to hike rates when wage growth remains unsatisfactory, Yellen as quoted by WSJ said, Our objective is price stability, which we've defined as 2% inflation. Before beginning to raise rates, the committee needs to be reasonably confident that over the medium term, inflation will move up toward its 2% objective. Furthermore, she made clear that the Fed continue to closely monitor wage growth, and that they believe if the job market continuously improved then wage growth will pick up because wage tends to be lagging indicator, Because of that, she did not consider it important to see significant wage growth before moving up Fed rates.

Perhaps due to the low recent inflation, Yellen also said in the first day that the Fed may stay patient before hiking rates. Moreover, even after the word patient disappear from the Fed statement, it does not necessarily mean that interest rates will soon be hiked. Contrarily. the Fed will start weighing rate hike on meeting by meeting basis.

 

Inflasi

US Inflation Data: Inflation rate in January 2015 was recorded at -0.1 %(yoy) although core inflation stabled at 1.6%
 

3. Global Risk From China and Europe

The Phd recipient from Yale University specifically underlined global risk from China as slowdown may be worse than expected, and from Europe because of slow recovery and inflation. However, she said that monetary stimulus should help to pick up growth and inflation.

In the next discussion, Yellen explained global development may influence United States, but between the positives and negatives, she was confident the risk is still balanced for the US. Strong domestic demands and expenditures have and will lay solid ground for economic recovery. What's more, she hoped cheap oil price to impact the economy positively.

 

4. Yellen Refused To Support Dodd-Frank Act Changes

An act launched in 2010, The Dodd-Frank Act is considered as the most significant changes on financial regulation in the US after Great Depression in the 30s. However, some accused the Act is not enough to prevent another financial crisis and other bailouts, while some others consider it overly strict for financial institutions. Lending a hand for the many voices against the Act as it is, one of the member of the House spoke up and asked Yellen opinion on Dodd-Frank Act changes. In response, Yellen said that she considers the Act have provided flexibility for regulators to tailor bank rules.

On the other hand, she also mentioned Fed plan to propose a new regulation about bank activity in the commodity market, including Alumunium and Oil. 

 

5. Yellen Refused Not To Comment On Wider Economy

It is not just once or twice that Fed chief statements about US and global economy shakes teh market. Because of this, have you ever thought that it is better if she stay quiet? Beside of influencing the market, Yellen's comments also draw criticism from the House as she has often touched the subject of income inequality. Consequently, a Republican representative advised her not to comment on thinks that are not about monetary policy. She steadily resolved, All of my predecessors have talked about large, important economic trends and problems affecting the country. I feel that I am entitled to do the same.

Apart of responding to questions on economy and financial stability, the top Fed official also sit on the receiving end of criticism on perceived closeness between her and the White House. In the list of meetings that Yellen has done since taking over the office from Ben Bernanke, she was recorded in more meets with US executives rather than legislators. Some reps in the Capitol Hill apparently concerned that Fed policies will be influenced by certain political leaning, an allegation that quickly denied by Yellen. Nevertheless, it became quite a hot topic among analysts because Yellen is apprently the first Fed chief accused of political bias.

Meanwhile, from the economy side, analysts consider Yellen's testimonials indicate that Fed rate hike will probably happen after June. Some even went so far as place the timing at September or even further than that. This is because inflation is projected to fall under 2 percent in the coming months. Kathy Lien from BK Asset Management noted, When the Fed is ready to raise interest rates, they will change their forward guidance, preparing the market for the imminent move. By keeping the word patient in the monetary policy statement, the Fed is telling us that liftoff will not happen for at two more meetings. So when the central bank is ready to move on rates, their first step will be to drop the word patient from the FOMC statement. The decline in the dollar against the euro, Japanese Yen and other major currencies today indicates that dollar bulls hoped for more but at the end of the day, we still believe that buying dollars is the right trade because a 2015 rate hike remains on the table.