Confused by what Janet Yellen said? As it turns out, so is everyone else, where the prevailing sentiment across the sell-side analysts was that Yellen was not dovish enough. Then again, with expectations bordering on Yellen giving the "BTFATH" green light, there is no way she was not going to disappoint...
First, and foremost, we start with the firm whose former employee runs the operational branch, i.e., the New York office, of the Fed, Goldman Sachs:
Goldman (Jan Hatzius):
- We think the tone from Chair Yellen's Jackson Hole speech was broadly balanced, perhaps slightly more so than in past speeches.
- She noted both the more rapid-than-expected pace of recent labor market improvement, as well the still-significant level of labor underutilization.
- She continued to emphasize the "dashboard" approach to assessing the state of the labor market, while at the same time stressing uncertainties in determining exactly how much slack remains in labor markets and how price and wage developments should be interpreted.
And the rest of the sell-side, via Bloomberg:
Barclays (Michael Gapen)
- Don’t see Yellen core views as having changed but rather see shift in tone as “normal evolution” as Fed is closer to achieving dual mandate
- Discussion on wages signals Fed not looking for 3-4% wage growth as precondition to raise rates
- Maintain view first rate hike to come in June 2015
Scotiabank (Guy Haselmann)
- Yellen’s speech “was very balanced,” seemed more ambiguous about how much slack there is in U.S. economy
- “She had more confidence about the amount of slack in the economy before, and today she admitted that it is difficult to gauge. So the speech was a bit less dovish than expectations”
Deutsche Bank (Alan Ruskin)
- Very balanced nature of Yellen speech a disappointment to those who expected her to live up to dovish reputation
- Surprised by more hawkish tone on wages; seemed reluctant to use soft real wages as gauge of labor market slack
- “This was not a speech from a policy maker who was making a strong argument to ‘wait and see the whites of the eyes of inflation’ before reacting”
Brean (Russ Certo)
- Yellen’s speech hints at “tightening faster” rather than later
- “My takeaway is that she used to think there was X% of slack in the labor force,” now has revised her estimates “so we now have less than X%”
GMP (Adrian Miller)
- Yellen “not dovish enough,” bond investors having “modest temper tantrum”
- Nod to troubles measuring slack “could be considered somewhat more hawkish than her previous firmer views”
Capital Economics (Paul Dales)
- Yellen doesn’t seem to have changed view there’s still “significant” slack in labor market
- If FOMC minutes signaled Fed was 2 steps closer to hiking rates, Yellen’s speech could be seen as taking one step back
CRT (Ian Lyngen)
- Yellen seems more comfortable with idea that some of labor market utilization may be structural as well as cyclical
Renaissance Macro (Neil Dutta)
- There’s risk of earlier rate increases, given uncertainty cited by Yellen on conditions that will gave way to rising wages and what that means for inflation
- Even so, markets are very confident that speed, end- point of tightening cycle will be “slow and low” and that Fed will start in mid-to-late 2015
- “In some respects, the markets continue to ignore Yellen”
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The irony, of course, is that all of the above are simply conusing what Yellen said with something totally different, namely the market's reaction to headlines out of the Ukraine. But in the New Normal nothing really matters or makes sense any more.
