Risk Assets Drive Higher on Yellen’s Testimony

by on February 11, 2014 7:56 pm BST

Newly appointed Federal Reserve chairwomen Janet Yellen testify for the first time in front of a Congressional panel as the Fed chair. The chairwomen, after praising her predecessor Ben Bernanke, said notable evidence of changing growth trajectory would be needed to halt further tapering of the current $65 billion in month asset purchases. Yellen noted that “the recovery in the labor market is far from complete,” as the unemployment rate is looking to hit the Federal Reserve’s 6.5 percent unemployment target to raise the benchmark rate, which remains at zero.

Yellen said “those out of a job for more than six months continue to make up an unusually large fraction of the unemployed, and the number of people who are working part time but would prefer a full-time job remains very high. However she was challenged on several occasions on whether or not it is a good sign to the markets if the unemployment threshold was hit and the Federal Reserve does not follow through on their guidance. Also, the Fed chair was asked to define what the Federal Reserve determines what a part-time job is, and Yellen was unable to answer that simple question after stumbling briefly.

Risk assets took Yellen’s dovish outlook well and rallied quickly. The USDJPY is positive by 45 pips as the yen sold off. Prior to the testimony, the pair was lingering near 102 yen per dollar, currently trading at 102.64. Equities surged to continue the best four-day rally in 13-months, with the S&P 500 back above 1,800 and the DJIA moving through 16,000. The dollar remained lower on the day as commodities rally. Safe-havens gold and silver remain elevated throughout the day and remain at the high-end of the range.

The next FOMC meeting is not until March 18, and it will be interesting to see if around round of economic data fails to impress the markets. It is expected that the Fed will continue on with the taper and zero-interest policy (ZERP) until future notice.