Goldman Responds To Yellen’s Testimony: “Little New Ground”

In a report that was perhaps most surprising for the fact that someone actually managed to stay awake during Yellen’s entire 1st day of congressional tesitmony, not so much for its conclusion, Goldman summarizes what Yellen said and concludes that “she broke little new ground”, which is to be expected: as long as stocks keep rising, why change anything, and why pretend that anything can change if needed?

From Jan Hatzius:

Yellen Breaks Little New Ground 

 

Bottom Line: Chair Yellen broke little new ground in testimony before the Senate Banking Committee. She remained upbeat about the economic outlook, but said that the FOMC would need to watch incoming labor market data to determine whether recent signs of slowing are indeed transitory.

 

MAIN POINTS:

1. Fed Chair Yellen’s remarks in the first day of testimony before Congress hewed closely to her comments in the post-FOMC meeting press conference last week and her speech on the economic outlook earlier this month. Chair Yellen noted that economic growth has been “uneven” lately, and that payroll employment gains stepped down in April and May. Nonetheless, she remains “optimistic that we will see further improvements in the labor market and the economy more broadly over the next few years”. The FOMC will be watching the labor market data closely to “see whether the recent slowing in employment growth is transitory, as we believe it is”.
2. Most of the Q&A focused on longer-term structural issues, such as the impact of lower potential growth on capital spending, and the challenges of skill-biased technological change on certain segments of the workforce (as well as regulatory matters). On negative interest rates, Yellen said that she believes the Federal Reserve has the legal authority to charge negative rates, but that this approach would likely be very low on the list of options in the event of a downturn.

We have just one question: when Yellen says “she is confident that the economy will improve over the next few years”, what exactly does that translate to in S&P 500 points?

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