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Clarksville, TN – In her first monetary policy testimony to Congress, Fed Chair Janet Yellen appeared calm, confident, and in charge.
She pledged continuity in monetary policy and regulatory reform. While “not on a preset path,” the monthly pace of asset purchases will likely be reduced “in further measured steps at future meetings” (which is widely interpreted as -$10 billion per Fed policy meeting).She repeated the notion that the overnight lending rate is likely to remain low “well past the time that the unemployment rate declines below 6.5%.”
She indicated that, while the Fed is watching developments in emerging economies closely, “our sense is that at this stage these developments do not pose a substantial risk to the U.S. economic outlook.” She also reserved judgment on the recent soft gains in nonfarm payrolls, noting the impact of poor weather.
With little fanfare, the Senate and House each passed clean extensions of the federal debt ceiling (to March 16th, 2015). These will be reconciled and the final bill will then be signed by the president. That’s one less worry for the financial markets.
Retail sales and industrial production figures for January disappointed. Investors were willing to dismiss that as being due to bad weather compounded by seasonal adjustment. However, largely unnoticed by the markets, figures for the last few months were revised down, suggesting less momentum at the end of the year and slower growth in the first quarter of 2014.
Next week, the Bureau of Labor Statistics will significantly expand the scope of the Producer Price Index. The new headline index will include services (in fact, about two-thirds of the headline figure will be services). This should provide more detail about the transmission of inflation pressures. However, these pressures are expected to be relatively benign in 2014.
Consumer Money Rates
Treasury Yield Curve – 02/14/2014
S&P Sector Performance (YTD) – 02/14/2014
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Tax Equiv Muni yields (TEY) assume a 35% tax rate on triple-A rated, tax-exempt insured revenue bonds.
The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Data source: Bloomberg, as of close of business February 13th, 2013.
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