In her confirmation testimony back in November Ms. Yellen was considered a monetary dove: interested in keeping rates low for a considerable period. This was consistent with the speeches and predictions she made as an Open Market Committee member. At her first press conference in March the new Fed Chair came off hawkish, stating that interest rates could start rising as early as March of 2015. Yesterday she testified before the bicameral Joint Economic Committee and she sounded like a dove again. Which is it?
It’s the job of the Fed’s leader to be vague. In the late ‘80s and ‘90s Alan Greenspan called it “constructive ambiguity.” He perceived that his job was to answer questions so that his words wouldn’t move the markets. When Ben Bernanke took the helm he was less convoluted in his speech but he tended to drown out the question with the scope of his answer. He interpreted “Fedspeak” to mean clear and extensive communication from the Fed, with the emphasis on extensive
The new Fed Chair is learning that her words have more import than any other economic actor. We live in an age of fiat money, where our discretionary monetary policy is the most powerful single economic force in the world. As the Fed’s leader, what she says will affect the fortunes of billions of people around the globe. So it’s no surprise that her hearers will read their own expectations into her discussion.
Words have meaning, sometimes more than we want them to have. Janet Yellen will have to learn the art of saying nothing for a long,long time.
Douglas R. Tengdin, CFA
Chief Investment Officer