- It’s become received opinion that Janet Yellen made a “rookie gaffe” in her first press conference as Fed chair, thereby “rattling markets”. She didn’t.
According to Peter Coy, Yellen made a “substantial blunder”. John Cassidy says she “got into trouble” when she told Reuters’ Ann Saphir that the Fed would wait “something on the order of around six months” after QE ends before starting to raise rates. Clive Crook was so perturbed by the presser that he is beginning to doubt the wisdom of the Fed having any kind of forward guidance at all. Mohamed El-Erian seems inclined to agree: the markets aren’t mature enough, he says, to internalize new information without over-extrapolating (i.e., freaking out).
But here’s the thing: the market didn’t freak out. The chart above shows the benchmark US interest rate — the yield on the 10-year note. The chart gives you a reasonably good idea of what normal volatility is: last Thursday, for instance, the yield fell by a good 10bp when John Kerry made noises about imposing sanctions on Russia. And overall, the yield has stayed comfortably in a range between 2.6% and 2.8%.
Bonds not stocks, transparency is important, etc. For a certain subset of the population it is quite exciting to watch a new Fed chair adapt to the job!
Listened to several speeches from Bord of Governers in the last year. One thing they have reapeatedly indicated was that trying to speak and act in a way that keeps the stock market calm makes communication and governance almost impossible. Their job is managing the macro economy, not insuring short term profits for wall street. The more they shock wall street with reasonable policy disscussion the more wall street will be able to cope with the feds attempts to influence the economy. I haven't heard a speech or discussion with a fed big wig where this wasn't an issue that was emphisized.