Fed Yellen’s testimony: Expect no new surprises – BAML

Analysts at Bank of America Merrill Lynch (BAML) note that the Fed Chair Yellen is expected to sing the same old tune in her congressional testimonies commencing later today.

Key Quotes via eFX:

“Fed Chair Yellen will be appearing before Congress in the semi-annual monetary policy testimony. We expect her prepared remarks to sound similar to her most recent speech, noting that the labor market has tightened and wage pressures are increasing modestly. She will likely note that the Fed is making progress toward its mandate of full employment and price stability with core inflation approaching the target.”

“However, we expect Yellen to reiterate that the Fed must proceed with a gradual hiking cycle since rates are still close to the effective lower bound and that long-term rates are structurally lower. In the Q&A session, we expect the focus to be on the debate over rules-based policy vs. discretion, the Fed's independence and proposed fiscal policy. Yellen is likely to defend the Fed's independence and reiterate that fiscal stimulus is helpful, but that it depends on the design, especially given high debt levels.”