Was it a coincidence? The S&P 500 rose 1.2% on July 10 to 2,076. Federal Reserve Chairwoman Janet Yellen spoke about the economy and monetary policy the same day. Previously, I’ve observed that whenever she does so, stock prices tend to be up that day. Of course, investors were also relieved to see that China’s stock market rallied and Greece might still get a bailout. In any event, Ms. Yellen will be speaking again on July 15 and July 16 in her semiannual testimony to Congress on monetary policy.
In her speech on July 10, she made headlines saying, “Based on my outlook, I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy.” So one-and-done is still the most likely scenario for Fed policy this year. If so, then the next hot topic will be when might the second rate hike occur next year and how many more rate hikes might there be. Ms. Yellen’s comments suggested that rate hikes are likely to be small, few and far between in 2016.
Ms. Yellen is a labor economist by background, and it shows. She just isn’t convinced that the labor market has improved as much as suggested by numerous upbeat indicators, including the official unemployment rate, payroll employment and job openings. She said: “But it is my judgment that the lower level of the unemployment rate today probably does not fully capture the extent of slack remaining in the labor market -- in other words, how far away we are from a full-employment economy.”
Source: Ed Yardeni — Ed Yardeni is the president and chief investment strategist of Yardeni Research Inc., a provider of independent investment strategy and economics research for institutional investors.
