General Janet Yellen went up the hill to discuss the un-discussable with a body of politicians who have made her job impossible – a nine on a scale of ten, ten being most difficult.
She began by commenting on the fairly obvious.
“Financial conditions in the United States have recently become less supportive of growth,” she said in front of the House Financial Services Committee. “These developments, if they prove persistent, could weigh on the outlook for economic activity.”
But Yellen said it was premature to settle upon any tangible damage. She also suggested it was too soon to say whether the Fed would raise interest rates in March.
Ms. Yellen pointed up the strength of the labor market, describing “solid improvement” over the last six months. The unemployment rate fell to 4.9% in January, from 5.7% in January 2015. The economy added an average of 222,000 jobs a month over the previous year.
Donald Trump says the “real” unemployment rate is ten times that. Bernie Sanders says, at least a bit more rationally, that there are 5.4 million job openings of which $3 million require college degrees and another one million require some technical training. Sanders argues for free college and technical school tuition. Trump rails against “free stuff.” Any way you slice it, those job slots are going unfulfilled and the economy can’t move faster.
As the New York Times put it, the Fed Chairwoman also suggested, “Ever so gently, that investors were not behaving rationally, suggesting that markets might rebound. While global economic and financial conditions have taken a turn for the worse, ‘we have not seen shifts that seem significant enough to have driven the sharp moves that we have seen in markets.’” Take that you other prognosticators!
The markets too Ms. Yellen’s comments relatively calmly. The final verdict from Yellen is clearly that the Fed has no firm idea of what will happen next. So, a March interest rate hike, while not a centerpiece idea, is still on the table.
In markets, gold is holding about steady for the day, just under its 7-1/2 month highs. The yellow precious metal traders were looking for some inspiration, which they did not get from Yellen’s testimony, to set them off on a solid movement.
U.S. 10-year bonds stayed in the box as safe-haven plays. Yields barely stayed above 1.70%, a sign demand is solid in that category.
The U.S. dollar was slightly weaker again, a sign that the currency market is betting against a rate hike in March as of the moment. The lower dollar also helped hammer advanced export economies again. The Nikkei fell another 2.30% on the session. The DAX exporters were weak as well, but banks and mining also hurt.
U.S. stocks were mostly positive to slightly lower but there was a big case of the blahs preventing any decisive movement. It’s hard to find direction in the current climate. Very hard. Everyone is feeling nervous, even if General Janet Yellen thinks there are a lot of over-baked cakes on Wall Street.
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Wishing you, as always, good trading,
Gary Wagner
thegoldforecast.com
