Yellen Says Fed is “Near” Its Goals of Full Employment and 2% Inflation

Janet Yellen may have nudged the wheel a few degrees ‘hawkish’ on Monday evening when she addressed students at Michigan State University.

Hawkish means in favour of raising interest rates and tightening monetary policy – a move which is bullish for the Dollar.

The Fed chief said that the central bank was “near” reaching its twin goals of full employment and stable 2% inflation, according to Market Watch’s Gregg Rob who blogged the event live.

She even said the Fed should not wait too long before moving interesting rates higher or else there would be a danger of the economy overheating, and then the Fed having to take ‘emergency measures’ and hike rates too quickly, which could cause a recession.

Rob noted that Yellen thus positioned herself more hawkishly than “some fellow members” such as St Louis Feds Jim Bullard, who “don’t see overheating as a threat.”

The Fed chief also said that the 4.5% unemployment rate was now low enough to pressure inflation higher.

Rob said she sounded, “calm about inflation, saying most officials do not think it is a significant problem.” And that, “the Fed doesn’t want inflation to “linger” above 2%.”

On the subject of Trump’s stimulus plans, Yellen said that Congress can take steps to boost the growth rate, although Tax cuts were not on her list.

The Dollar was little changed immediately after the speech, but Nordea’s Uffe Kalmar Hansen suggested the sell tone to Asian stocks on Tuesday morning may have been due to equity markets digesting Yellen’s more hawkish positioning (and falling).

Generally, stocks fall as interest rates rise since they put up the cost of borrowing for businesses.

“The US Treasury 10-year yield is lower by 2.7bp this morning standing at 2.339% seeing yesterday’s Yellen speech as risk-off.

The EURUSD currency pair is also lower standing at 1.0586,” said Hansen.

He highlighted her view that the Fed’s job had, “shifted from healing the economy to holding onto progress made.”

In response to the low Payrolls data on Friday, he said, “Yellen said that the unemployment rate may be a misleading indicator, and that she is concerned about participation of prime-age workers.”