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Yellen Comments:

-change in guidance didn’t mean altered path of policy

-decisions won’t be based on ‘any one indicator’

-longer run inflation expectations are steady

-labor market behaving in perplexing ways

-too-slow inflation is a greater risk than too-fast

-pledge on inflation is two-sided

-confident that Fed has the tools available to keep a lid on price levels

-Fed is mindful of spillover effect in removing stimulus

Fed’s Beige Book Summary:

-economic growth in the U.S. ‘increased in most regions’

-demand for loans has strengthened since the previous Beige Book

-labor market conditions are mixed, but are generally positive

-home prices have risen moderately, inventories remain low

Chair Yellen remarks today in New York remained in line with previous comments and set out to further mitigate fallout from what markets took to be hawkish stance at the last FOMC press conference. While ‘6 month after the end of QE3’ comments sent rumbles through market financial markets two weeks ago, the Fed has been adamant in dispersing this market disruptive rhetoric with further dovish comments.

Meanwhile the Fed’s Beige Book indicated more of the same in regards to growth, although the weather was heavily noted for causing disruptions in some sectors of the economy. Something quite different from the last Beige Book was the fact that the Fed noted demand for loans had strengthened over the past few weeks. In the coming quarter we will see to what degree this demand follows through with actual lending and economic growth.

US equity markets moved higher in anticipation of Chair Yellen’s comments and have since remained elevated post-Beige Book. Although markets may be muted in the face of holidays in the U.S. and Europe, note that we have Canadian inflation data coming out on Thursday at 12:30GMT and Chinese Property Prices for March at 01:30GMT on Friday.

Gregory Marks, DailyFX Research Team

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