Yellen Turns Goose on Speech Days as Fed Lays Golden Egg for Stocks

Janet Yellen has spoken publicly at length on the economic outlook or monetary policy seven times since becoming the Federal Reserve chief. Her next address, on June 18, might provide as good a reason as any to buy stocks.

That’s because Yellen’s effect has introduced a new fowl to central-banking euphemisms. To doves and hawks, we have our first goose.

Blame Allan Meltzer, a historian of the Fed and a professor at the David A. Tepper School of Business in Pittsburgh, who has warned for the better part of five years that Fed interest rate cuts and asset purchases were going to trigger inflation any day now. He says Yellen’s Fed is “goosing” equities with its provision of easy money.

Yellen didn’t take kindly to the description, saying last month she would “hardly endorse” the suggestion.

“We have no target for stock prices,” she told a Senate committee on May 7.

She may not have a goal, yet her Fed is still laying a golden egg for investors when she talks in public. On the seven days she has made lengthy statements on the economy or on monetary policy in a press conference, congressional testimony or speech since succeeding Ben S. Bernanke at the start of February, the Standard & Poor’s 500 Index (SPX) has risen five times.

The average percentage change on the day of a Yellen appearance -- perhaps the Goose Gauge -- is about 0.5 percent and the index is up 8 percent on her watch.

‘Fairy Godmother’

This is enough to make her the “Fairy Godmother of the Bull Market” in the view of Ed Yardeni, whose contribution to finance nicknames came in the 1980s with “bond vigilantes.”

The president of New York-based Yardeni Research Inc., he says the trend dates back to late 2011, when Yellen was the Fed’s vice chairman.

The S&P 500’s biggest gain on a day Yellen talked was 1.11 percent on Feb. 11 when she pledged to scale back stimulus in “measured steps.” It rose 1.05 percent on April 16 when she used a speech in New York to say the Fed was still falling short on meeting its twin goals of full employment and price stability.

To be sure, Yellen also can pull back the fairy dust. The biggest stock decline on a day when Yellen opined was a 0.61 percent slide on March 19 when she said borrowing costs could start rising “around six months” after the Fed stops buying bonds. She nevertheless said last month that “there is no mechanical formula or timetable for” rate hikes.

That leaves the Fed likely to keep its benchmark near zero for at least the rest of this year. With Deutsche Bank AG assigning Yellen a one on their rating of doves and hawks with five being the most conservative, equity investors may again be flying higher with delight.

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net Alan Crawford

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