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Yellen pretty much as expected….Federal Reserve Chairwomen Janet Yellen delivered a
speech today at the annual monetary policy summit at Jackson Hole, WY. Cutting
through the rhetoric, Yellen essentially reiterated and supported her position
that there remains a high degree of slack in the U.S. labor market, therefore
justifying the Fed’s current low interest rate policy.
What’s the
point? The annual Jackson Hole speech
by the Federal Reserve chief is always a much anticipated event. Yellen’s
speech today was of heightened interest due to the focus on timing of Fed rate
increases. We think Yellen’s comments may have been confusing for some
investors. While paying “lip service” to the various academic arguments and
pros and cons of Fed policy, ultimately Yellen came down on the side of
continuation of current policy due to what she believes is continued slack in
the labor market, commenting that headline unemployment rate is not the sole
determinant of Fed policy. This is pretty much as we expected and we believe
bodes for similar accomodative monetary policy conditions. We expect this
policy is supportive of higher valuations for financial assets. At this point,
stocks continue to be more favorably valued particularly when compared on a
relative basis to bond valuations. When does this environment get interrupted?
Aside from an exogenous shock, it would probably be an unexpected acceleration
in the economy that causes the markets to believe the Fed has to change course
abruptly. Link: http://money.msn.com/business-news/article.aspx?feed=OBR&date=20140822&id=17877738
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