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Market Recon: Janet Yellen Gets the Party Started on Capitol Hill

"Motivation is everything. You can do the work of two people, but you can't be two people. Instead, you have to inspire the next guy down the line and get him to inspire his people." -- Lee Iacocca

Enter Volatility The good doctor speaks today in what may be her final Humphrey Hawkins testimony. Wondered why markets were eerily quiet over the first two days of the week? Well, this party is just getting started, gang, as Federal Reserve Chair Janet Yellen heads to Capitol Hill. Her audience today will be the House Financial Services Committee. The song and dance begins at 10am ET, but the text of Yellen's opening statement will be made public at 08:30. That's what the financial media will cover, and that's what will push equity index futures, currency valuations, and yields around prior to the opening bell at 11 Wall Street. Janet Yellen is obviously no neophyte. Lawmakers will press her today for more than she wants to say, depending on their personal priorities, or those of their constituents. She will be thanked for her time, just in case the end really does come for her time as Fed honcho in February, though she could serve as a governor for several years more. What she will have to speak candidly on will be the trajectory of interest rate policy and the timing of the coming "quantitative tightening" program. Factors impacting these policies such as recently inconsistent macroeconomic performance will be touched upon, and asked about.

In particular focus will be inflation, not just at the consumer level, but at the earner level as well. On top of that, the Chair has recently opined on asset valuations, as have New York's William Dudley, and San Francisco's John Williams. This was a change in rhetoric, and quite possibly somewhere central bankers should not go. At least in theory, price discovery should be a result of supply and demand at a given time. Yellen will be pressed by legislators to expound on those thoughts.

Makes Sense to Me

No matter what else does come up, primary to currency, bond and equity traders will be any hints as to whether central bankers think that they can maintain the upward moving trend that has been set for the fed funds rate while simultaneously letting expiring debt roll off the balance sheet. Fed Governor Lael Brainard sounded cautious yesterday regarding such policy. Brainard, who had been known as being extremely dovish until January when she suddenly became a hawk, has sounded of late as if she is falling back into a dovish state of mind. Brainard gave the impression yesterday that she would be open to halting the rate hike process at the September meeting, giving the FOMC time to assess the impact on the economy of the start of the balance sheet draw-down. Though I do not often agree with Lael Brainard, this is actually what I have been calling for since the idea of managing the balance sheet...


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