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24 Feb 2015
The three probable scenarios of Yellen’s testimony – ING
FXStreet (Barcelona) - Rob Carnell of ING, lists, and provides the market outcome for one of three things possible in today’s Yellen’s testimony.
Key Quotes
“Do nothing: Stick to current FOMC text. Whilst this would be seen as damaging to the June rate hike camp, it could also just be a choice to buy time for a few more weeks to assess the run of economic data, and importantly, the backdrop for oil prices (no longer viewed as wholly positive) and the external environment (Greece, and Ukraine amongst the top worries).”
“The market response is likely to be positive for bonds and negative for the USD.”
“Amend use of the word “patient”, by either wrapping it around other conditions, or inserting a diluting adjective, such as “some” or changing the tense to describe recent Fed actions as having shown “patience”."
“Market reaction would be for a small rise in bond yields and some slight USD appreciation.”
“Drop “patient” altogether: Once dropped, it would be hard to re-insert this qualifier at the following FOMC meeting, so it would suggest very strongly that the Fed is gearing up for a June hike.”
“This should result in a sharp bond market sell-off at both front and back ends, and USD appreciation.”
“Our preference at this stage is for some form of qualification of the word “patient”, either by inserting a diluting qualifier, or by referring to the economic conditions under which patient could be dropped – conditions which would be close to already being fulfilled today, and probably wrapped around the elimination of labour slack, and tied to core inflation remaining steady as headline rates tumble.”
“..with US headline inflation likely to have turned the corner well in advance of the June meeting, a June rate hike remains a sensible call as far we are concerned..
Key Quotes
“Do nothing: Stick to current FOMC text. Whilst this would be seen as damaging to the June rate hike camp, it could also just be a choice to buy time for a few more weeks to assess the run of economic data, and importantly, the backdrop for oil prices (no longer viewed as wholly positive) and the external environment (Greece, and Ukraine amongst the top worries).”
“The market response is likely to be positive for bonds and negative for the USD.”
“Amend use of the word “patient”, by either wrapping it around other conditions, or inserting a diluting adjective, such as “some” or changing the tense to describe recent Fed actions as having shown “patience”."
“Market reaction would be for a small rise in bond yields and some slight USD appreciation.”
“Drop “patient” altogether: Once dropped, it would be hard to re-insert this qualifier at the following FOMC meeting, so it would suggest very strongly that the Fed is gearing up for a June hike.”
“This should result in a sharp bond market sell-off at both front and back ends, and USD appreciation.”
“Our preference at this stage is for some form of qualification of the word “patient”, either by inserting a diluting qualifier, or by referring to the economic conditions under which patient could be dropped – conditions which would be close to already being fulfilled today, and probably wrapped around the elimination of labour slack, and tied to core inflation remaining steady as headline rates tumble.”
“..with US headline inflation likely to have turned the corner well in advance of the June meeting, a June rate hike remains a sensible call as far we are concerned..