Janet in Jackson

Durable Goods orders are up 4.4%, quite a bit above expectations. Jobless Claims are down by a thousand, which also beats expectations.  Those are two encouraging pieces of information, but what people really want to hear is the thoughts of one woman, who will be speaking at a symposium in the Cowboy State tomorrow about the future of interest rates.  Fed Fund Futures are prognosticating a 21% chance of a rate hike in September and a 41% probability in November.

Raise Rates to Not Increase Inflation

I know I know, I have used this image before.  I am an old hack who is unoriginal in his thoughts, but it’s Friday and this actual photograph of the Federal Reserve Board Chair Janet Yellen is an uncanny metaphor of her “hawkish” 23 page speech at the University of Massachusetts last night.  Ms. Yellen said that the Fed will likely raise interest rates later this year (read: December) as a result of improvements in the labor market, and expects that inflation will tick up shortly afterward.  (BTW: in economic speak, a hawk is generally someone who favors higher interest rates to keep inflation in check.  Chair Yellen is insinuating that by raising interest rates, the chance of inflation spiking out of control will be mitigated.)

If you didn’t understand any of that besides “raise interest rates”, you got the point.  Watch for interest rates to start coming up.

All We Need is Patience

No economic reports out today; the entire free world awaits the utterance of one word from the lips of one woman.  Will she say it?  Will she not?  Has she been walking the streets at night just trying to get it right like Axel Rose did?  My thoughts are that the prepared statement read by Fed Chair Janet Yellen this afternoon will not include the word “patience”.  The Fed will wait at least another month before raising the Fed Funds Rate and even then it’s iffy through summer.  However, just the insinuation that the FOMC is prepared to hike rates at any given meeting has the strength to move the markets one way or the other. Consequently we will listen at 12:15 our time to determine if we should be patient while the Federal Open Market Committee leaves their rate at zero, where it has been since October 8, 2008.

Janet Speaks and the World Listens

The S&P, Bonds and oil prices are all up marginally after Fed Chair Janet Yellen testified on Capitol Hill about the Fed’s monetary policy and the current state of the US economy.  A few highlights include:

  • Inflation remains below the target range
  • Although consumer spending is up and employment looks better, growth remains sluggish
  • There is still room for economic improvement
Chair Yellen then elaborated on the use of the term “patience” in the minutes of the last FOMC meeting to mean that they could raise rates at any meeting, but not likely to occur in the next couple of meetings.

In economic news, the Case Shiller 20-city Home Price Index rose by 4.5% from December 2013 to December 2014, above the 4.3% expected.  The month over month median price rose by 0.9%, the largest since last spring.