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3 Jul 2014
Another dovish speech from Yellen - Deutsche Bank
FXStreet (Łódź) - Jim Reid from Deutsche Bank comments on Fed chief Janet Yellen's speech at the IMF conference on Wednesday pointing out that she adopted a dovish tone once again, downplaying the role of monetary policy as a tool to promote financial stability and highlighting that using rate policy to tackle asset price inflation may come a cost to the Fed’s inflation and unemployment mandates.
Key quotes
"For the second time in less than a month though, Yellen has brought up the signs of excess in credit markets."
"Yesterday she again noted corporate bond spreads have fallen to low levels, suggesting 'that some investors may under-appreciate the potential for losses and volatility going forward'."
"Yellen also noted that credit terms of leveraged loans have eased significantly but that overall measures do not suggest that non-financial borrowers are taking on excessive debt."
"Despite this core message, by our reading Yellen left the door slightly ajar by noting that 'there may be times when an adjustment in monetary policy may be appropriate to ameliorate emerging risks to financial stability'."
"Indeed the Fed Chair cited the experience of the mid-2000s where perhaps policymakers should have reacted to the growing house price bubble."
"But she again reiterated that monetary policy was and is a very blunt tool to tackle house price inflation and one that would likely leave large costs in terms of increases in unemployment."
Key quotes
"For the second time in less than a month though, Yellen has brought up the signs of excess in credit markets."
"Yesterday she again noted corporate bond spreads have fallen to low levels, suggesting 'that some investors may under-appreciate the potential for losses and volatility going forward'."
"Yellen also noted that credit terms of leveraged loans have eased significantly but that overall measures do not suggest that non-financial borrowers are taking on excessive debt."
"Despite this core message, by our reading Yellen left the door slightly ajar by noting that 'there may be times when an adjustment in monetary policy may be appropriate to ameliorate emerging risks to financial stability'."
"Indeed the Fed Chair cited the experience of the mid-2000s where perhaps policymakers should have reacted to the growing house price bubble."
"But she again reiterated that monetary policy was and is a very blunt tool to tackle house price inflation and one that would likely leave large costs in terms of increases in unemployment."