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Opinion
Tim Duy

Yellen Leaves Markets With the Wrong Impression

It would be a mistake to interpret the Fed Chair's comments as a dovish turn that puts in doubt the expected policy path.
Janet Yellen sends mixed signals.

Janet Yellen sends mixed signals.

Photographer: Zach Gibson

Federal Reserve Chair Janet Yellen’s prepared testimony for her semi-annual report to Congress made clear that central bankers are struggling to understand the recent downward trend in inflation. Still, it is important to remember that the path of monetary policy depends not just on inflation, but also on unemployment. Yellen knows this, and it would be a mistake to interpret her comments as a dovish turn that puts in doubt the Fed’s expected policy path for the remainder of this year and in 2018.

Here's the key passage in Yellen's prepared testimony where she highlighted the inflation issue in the context of the Fed's forecasts: