Will Fed Yellen Testimony yield rate hikes clues?

All eyes are turning to the Fed Chair, as Yellen will be testifying tomorrow before the Senate Banking Committee. Will Fed Yellen Testimony yield rate hikes clues? Is she going to take the driver’s seat from Trump?

13 February, AtoZForex Stanley Fischer, the US Fed Reserve Vice Chairman, said there was significant uncertainty about US fiscal policy under the Republican administration. But the Fed knows their responsibility and is going strictly in meeting targets of maintaining full employment and getting inflation to 2%.

In his speech at the Warwick Economics Summit on Saturday, Mr. Fischer commented:

“I don’t think Dodd-Frank as a whole is going to be repealed, but there may be some adjustments to it.  Significantly reducing capital requirements would reduce the system’s safety.  I certainly hope it is not going to happen.

There is quite significant uncertainty about what is actually going to happen.  I don’t think anyone quite knows.  It is a process which involves both the Congress and the administration in deciding fiscal policy.”

He commented the day after Daniel Tarullo, the Fed Reserve Regulatory Point Man, mentioned about his resignation.

Is Yellen going to take the driver’s seat from Trump?

Since Trump was elected as a president, he himself has taken the driver’s seat for markets and has been pushing the obsessive focus on the Fed aside with his big pro-growth fiscal policy promises impacting market expectations.  But the current back seat driver can grab the steering for at least two days in the coming week, when Federal Chair Janet Yellen testifies on the economy and Fed policy before Senate and House committees.

The Wall Street traders are waiting to hear from Yellen that the Fed is on track as per their forecast to raise interest rates three times this year and even the timing for the next move.  Analysts also expect to hear what Yellen thinks about potential new tax policy, banking deregulation, fiscal stimulus, and efforts to exert new supervision over Fed itself.

Trump and Yellen on the same page

Jack Ablin, the Executive Vice President and CIO at BMO Private Bank, believes that Donald Trump and Janet Yellen are on the same page.  He thinks that they want the same thing.  He also added:

“Just like last year, the Fed started the year with a forecast where we were going to have four rate hikes, but we got one.  I expect the same thing this year.”

The US President Donald Trump will stay a top focus as he had from his first day in White House. In the past week, he shook markets out of their doldrums by saying that in the next two to three weeks he would provide details on tax reform.

Will Fed Yellen Testimony yield rate hikes clues?

As per the Fed, the markets have been at odds with their own forecast and expectations.  Wall Street is skeptical the interest rate can hike three times this year, as they target only two rate hikes.

The managing Director and Head of US Interest Rates Strategy, George Goncalves, stated that Yellen would not want to be boxed in by giving any time frame for a hike.  He thought the markets expect it to move in June.  Looking at the outlook, he commented that they could ramp up three hikes in the second half of the year.  He also added:

“March isn’t going to be an insurance hike to start the process for this year.  You just don’t do that to keep the ball rolling.  You do it when you are more confident in the outlook…It is all about confidence.  Not confidence around (Trump), just confidence about what is going to be delivered on the government side.”

The Republican tax plan will also remain on top of mind for markets and there now is a wait-and-watch approach on what Trump will propose — a similar plan to the House Republicans, which includes a border adjustment tax or something else.

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