Major Yellen Comments:
-There are dangers in ending QE as well as continuing it.
-The benefits exceed the costs of QE.
-It's important not to remove support too soon.
-There are costs and risks associated with QE, it 'cannot continue forever.'
-FOMC committed to 2% inflation goal.
-Weak demand is 'a major drag' on the US economy.
- QE is not aimed at helping to finance the deficit of the U.S..
-Addressing too big to fail is among her top goals.
-U.S. will raise the capital standards for big banks.
-Fed does not see a buildup of financial risks, sees limited evidence of a 'reach for yield.'
-Does not see 'misalignment' in asset prices, monetary policy is a blunt tool against such asset bubbles.
-Fed will continue to evaluate incoming data when weighing QE.
As expected, Ms. Janet Yellen continued to take a dovish stance on monetary policy as she answered questions from the Senate Banking Committee this morning in Washington. Questions ranged from those on the Fed’s quantitative easing program to regulation on banks that are ‘too big to fail.’
This brings participants back to square one in terms of guidance on the reduction of asset purchases. Markets will have to look at incoming U.S. employment and inflation data in order to speculate on the taper date. Although the Fed continues its policy of ‘transparency,’ confusion remains in markets as FOMC members voice their own personal and wide varying opinions on when the Fed should reduce asset purchases.
USD/JPY (30-Minute Chart)
Source: FXCM Marketscope
During Ms. Yellen’s comments we saw large fluctuations in the Dollar, most notably with USD/JPY as it nears some critical levels to the topside. The dovish ‘fedspeak’ in regards to QE sent US equities higher with the S&P 500 hitting all-time highs once more. Although Ms. Yellen made it clear that QE cannot go on forever, she danced around questions that pressed her for a taper timeline and that slammed US yields lower.
FOMC minutes from the October 29-30 meeting will be released on November 20th and 19:00GMT while the next FOMC Rate Decision will be on December 18th at 19:00GMT.
Gregory Marks, DailyFX Research Team
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