Federal Reserve Chairman Janet Yellen speech to Economic Club of New York.
Janet Yellen sounds dovish, warning that policy adjustments, due largely to uncertain global risks and weak foreign growth, need to "proceed cautiously". In a speech to the Economics Club of New York, Yellen pointed to the lack of policy options available when rates are as low as they are, a factor that restricts the Fed's ability to respond with stimulus to weaker-than-expected growth. In contrast, the Fed's latitude is much greater should the economy strengthen more than expected, which she said would be "readily" met with rates hikes. This argument, which is placed right at the top of her speech, does not point to an April FOMC rate hike. She describes the economy as mixed so far this year but expects to see further improvement in the labor market. And she doesn't see any urgent threat from inflation which she sees holding below the Fed's 2 percent target this year and not hitting the target for the next two or three years. The PCE core rate, however, has held the last two reports at a 1.7 percent rate that is within striking range of the 2 percent target. Yet, in questions and answers, she downplayed the rate saying she's uncertain what to read in it. In other questions and answers, Yellen stressed that risks to the outlook are not all negative, that the economy is resilient and that the gradual outlook for rate hikes is a positive. She also said the economy is close to its maximum employment goal though she noted there may be more slack than reflected in the unemployment rate. The Dow is getting a lift from the comments, moving more than 100 higher to 17,750. Action is choppy but limited in Treasuries where yields moved several basis points lower across the curve before reversing some of the gains.
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