Well, the message from Yellen was heard loud and clear and amusingly, so was the message from Stephen Poloz.
In fact, you’d be forgiven for thinking they coordinated to make sure one offset the other.
The BoC hiked, as expected, but “expected” is a relative term here. Because the whole abrupt shift in rhetoric that culminated in Wednesday’s hike was, well, abrupt. All of this came to together over the past two weeks.
So with every DM central banker seemingly ready to “look through” purportedly “transitory” weakness in inflation, it doesn’t seem like a coincidence that Yellen came out dovish on Capitol Hill.
Today was classic “good cop/ bad cop.”
“Fed Chair Yellen’s congressional testimony was consistent with the more cautious tone evident in her prepared statement to the House of Representatives panel; absent any sense of urgency, Yellen’s comments supported the idea that balance sheet normalization will likely start in September and another rate increase won’t come until at least December,” Bloomberg wrote this afternoon, recapping the day’s events.
“Yellen’s acknowledgment of inflation as a concern pushes the next rate increase to December at best,” BNY Mellon strategist Marvin Loh said. The “market is now more comfortable under-pricing the three Fed dots in 2018,” Credit Agricole’s Vassili Serebriakov added.
Here’s Goldman’s take, for what it’s worth:
In the Q&A portion of her Congressional testimony, Fed Chair Janet Yellen said that balance sheet normalization would begin “relatively soon,” but offered no explicit hints about a July announcement. As a result, we now think that there is a 10% (vs. 20% previously) probability that the next rate hike will come in September, a 5% probability that it will come in November, and a 55% (vs. 50% previously) probability that it will come in December. Cumulatively, this implies a 70% probability (vs. 75% previously) of at least three hikes this year.
