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After the Fed tapered bond buys for the 5th time, Fed Chair Janet Yellen met  the press.  She  managed to keep a balanced approach, saying that  everything is possible and data  dependent. The result is a  weaker dollar, especially against  commodity currencies. Here is the  live blog of the event.

Highlights

  • Maintain low FFR for a considerable time
  • Next decisions depend on data
  • More data on normalization expected later in the year.
  • Recent CPI data somewhat noisy
  • Decline in longer term interest rates due to new members.
  • Uncertainty is normal.
  • There is no mechanical formula about a “considerable time”.
  • GBP, AUD, NZD and CAD rise. Euro lags.

Live Blog

  • 18:25 GMT Press conference begins at 18:30. All times are GMT. You can watch the event here.
  • 18:27 The dollar initially fell but then recovered. Towards the presser, the picture is balanced: EUR/USD is back to the drawing board of 1.3570.
  • 18:30 The press conference should begin soon.
  • 18:31 Press conference begins
  • 18:31 Economy making progress: labor market conditions have improved.
  • 18:32 U-6 real unemployment rate is dropping, but employment still elevated.
  • 18:32 GDP contraction is due to transitory factors. Consumption continued to rise.
  • 18:33 Inflation below objective. Inflation expectations well anchored. Inflation to move gradually towards objective.
  • 18:34 (Fed looks at Core PCE rather than Core CPI)
  • 18:35 On staff projections, central tendency around  unemployment is lower.
  • 18:35 Normal unemployment expected to be reached in end 2016.
  • 18:36 GDP lower because of Q1.
  • 18:36 Yellen explains tapering: $35 / month begins in July. After QE ends, Fed will maintain balance sheet.
  • 18:36 QE supports job creation, cheaper lending, better economic conditions.
  • 18:37 If current conditions continue, QE tapering to continue. Purchases are not on a preset course.
  • 18:37 On interest policy: Fed will determine rates on progress in inflation and employment. It will not hinge on one or two indicators.
  • 18:38 Maintain low FFR for a considerable time.
  • 18:39 Even when situation improves, the interest rate will remain low.
  • 18:40 Potential growth rate may be lower for a long time. Rates contingent on economic outlook.
  • 18:41 If the situation improves, rates will rise faster. If the economy disappoints,  rates to rise later.
  • 18:42 Communication does not tie the hands of the Fed.
  • 18:43 Rates to rise when appropriate
  • 18:43 Discussions towards normalization. More details later this year.
  • 18:44 Questions begin
  • 18:45 What tolerance is there for higher inflation?
  • 18:45 Recent readings on CPI have been on the high side, but data is noisy.
  • 18:45 PCE forecasts haven’t changed. We will not tolerate a level of PCE inflation that is too far from the objective.
  • 18:46 Question about the decline in long term interest rate, 3.7%.
  • 18:47 Answer: there are new members on the FOMC.
  • 18:48 Labor market broadly improved.
  • 18:49 Job growth is almost 200K in the past 12 months. However, the drop in the unemployment rate is not representative of the bigger picture in the job market.
  • 18:50  Low participation rate also due to discouragement.
  • 18:51 Decisions depends on achieving our goals. No single indicator.
  • 18:51 Currency markets are stuck – no reaction to Yellen.
  • 18:52 Q from  WSJ Fed guru: volatility is low everywhere. What is your read on market activity? What is your view on market expectations on a rate hike?
  • 18:53  Volatility is at low levels, confirms Yellen. The Fed has no target.
  • 18:54 Fed does not want to see excessive risk taking. Important to emphasize that uncertainty is normal for the path of interest rates.
  • 18:55 In the dot chart, there is a variety of thoughts, and that reflects the uncertainty. It depends.
  • 18:56 Part of the reason for slower growth is due to low capital investment. As the economy picks up, the contribution of investment can be restored.
  • 18:57 Long term unemployment erodes skills. Calls it “hysteresis”.
  • 18:58 Essential that in the aftermath of the crisis to strengthen financial regulation and reduce systemic risk.
  • 19:00 Credit is available in the economy.
  • 19:01 We need to clarify the rules around mortgage lending.
  • 19:02 Question about growth projections for 2014 and later. Are you confident about growth?
  • 19:03 Good reasons to see sustained growth: less fiscal drag, loose monetary policy, improving job market, rising home and equity prices, etc.
  • 19:05 Reinvestment policy was included. Considering the reinvestment policy, no conclusions yet.
  • 19:05 Fed’s portfolio will eventually consist of more treasuries.
  • 19:06  We will have a revised set of exit principles later this year.
  • 19:07 EUR/USD is very stable during Yellen’s press conference.
  • 19:10  There is a  risk of reaching the employment objective before reaching the  inflation objective.
  • 19:11 A balanced strategy is our approach.
  • 19:13 We need to respond to unfolding developments.
  • 19:14  It seems that Yellen has mastered the art of talking without saying anything…
  • 19:15 Question about  global weaknesses.
  • 19:15 We monitor potential threats to financial stability very carefully.
  • 19:16 There is some evidence of “reach for yield” behavior.
  • 19:17 I don’t see broad trends that the level of financial risks can rise above a normal level.
  • 19:18 About global risks: we always pay attention.
  • 19:19 What about the stock market? The committee does not have a target.
  • 19:22 Eventually wages will also rise.
  • 19:23 There is no mechanical formula about a “considerable time”. It depends on the economy.
  • 19:23 Press conference ends

Background

The Fed seems to be on a preset course to taper bonds, and at this pace the program ends in October.  The open question for markets is the timing of the first  rate hike. The employment picture is improving, with 4 consecutive monthly gains of over 200K.  Also core inflation has risen to 2%. On the other hand, growth looks weak, especially in Q1. More:  Will Yellen take a page from Carney’s book?