Friday, 3 March 2017
Yellen sets the tone ahead of March meeting
Have you been wondering what is Friday’s key event? Stop looking! It’s Janet Yellen speech at 18:00 GMT. Yes, the Fed Chairwoman is once again taking the microphone and the impact of her words could be huge for markets. But why?
Last week, Yellen recognized a rate hike could be due soon if the economy continues to perform at the current pace. Solid employment growth and inflation are the key behind any rate moves in the near future and so far, everything looks in order. Yellen latest remarks have been interpreted as hawkish, which pushed markets to the upside and increase odds for a March rate hike.
"Whether it is March, or May or June ... I can't tell you which meeting it would be," Yellen said.
When Yellen spoke last time, Trump’s address before the Congress was still to come. But today, she counts on Trump’s remarks as sort of benchmark to give a clearer signal on whether the regulator is ready to step up its monetary policy a bit more.
President Donald Trump said his team is developing an amazing tax reform that will release big pressure from the middle class and business. He also promised to move forward with deregulation of several industries, while saying drug prices should go down. According to analysts, his speech didn’t offer much details on the long-awaited tax plan, which at first took equity markets down but a day later revive them and pushed them to new record highs.
Trump words are certainly important for the US central bank. However, more than words, economists are expecting some real data on how Trump economic policies will actually play out in the country. At this stage, there is not that much to work with and it would be understandable if the regulator wants to take more time to weigh in the approach of the new administration.
A vast number of FOMC officials has been giving interviews this weeks. Most of them maintained a pro-hike posture, but what really turn on investors was Governor Lael Brainard saying an adjustment is becoming likely appropriately soon. The thing is that voting FOMC member Brainard is well-known for keeping a dove tone and this sudden change seems weird.
Trading Yellen’s speech:
- Hawkish: Buy USD, Sell Gold - If Yellen chooses to go on with the recent hawkish tone, it’s a great time for you to move forward with a strategy that weights in a possible rate hike in March.
- Dovish: Sell USD, Buy Gold - If there is a swing in the tone, then go for safe-havens such as bullion. They will probably rise because of a weaker dollar and higher uncertainty.