It’s no surprise that Janet Yellen is going to be under heightened scrutiny during her first few public appearances, and the tea-leaf reading and intensive interpretation are in full swing. To me, her first extended public statements as Fed Chief were fascinating: she seemed less inclined to set specific standards and metrics, and instead talked about evaluating things like the labor market in a more contextual and ongoing manner.
As Yellen put it: “The FOMC (Federal Open Market Committee) will continue assessing incoming data carefully, to ensure that policy is consistent with obtaining the FOMC’s longer run objectives of maximum employment and inflation of 2%.” She has stated that she plans to provide a little more (or at least more detailed) information than perhaps has been given in the past, and that could be a good thing or a bad thing.
On the one hand, you could make the case that providing too much information might lead to more instability or reactionary market swings. On the other hand, you could point to Ben Bernanke’s habit of making vague statements and the market’s subsequent tendency to over-interpret his comments and to read more into what he was saying than was actually there. I’m inclined to view Yellen’s communication style as refreshing, but the Fed’s continued/accelerated tapering of its moves to prop up the economy will likely not sit well with the markets. Hinting at the possibility of raising interest rates a little faster than anticipated will hurt.
The Fed had previously set a 6.5% unemployment goal/benchmark for when it would begin to rein in the aggressive low-interest-rate strategy it has been employing for so long now. With Yellen’s comments calling that approach into question, the months ahead look a little more uncertain.