Expect a Tug of War Between Fed and Markets: Harris

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March 19 (Bloomberg) -- Bank of America's Ethan Harris and Bloomberg's Mike McKee discuss today's comments from Federal Reserve Chair Janet Yellen. They speak on Bloomberg Television's "Street Smart." Bloomberg's Peter Cook also comments. (Source: Bloomberg)

6.5% rate.

We are close to it at 6.7. the fact that they are abandoning this threshold now, what does this tell us?

Ethan has to watch it for a living.

You have to watch a lot of different things depending on the evolution of the economy the between now and when the fed will be close to raising rates.

You will want to watch various measures of the employment picture and inflation picture.

We do not have any inflation to speak up.

Five years now, where is the inflation?

In the grocery store.

But there is some food inflation.

One of the things they are considering and deciding whether toinflation?

In the grocery store.

End qe, they want to see inflation picked up.

There is no evidence of any pickup.

It will make it very awkward when they go into their exit.

Inflation is staying down at one percent.

All the questions will come off about what is the trade-off.

We were talking about the dissent.

He thought the statement abandoned their pledge to defend the inflation target.

It did not see that way to me at all.

If inflation is too low, we are still on watch.

Lexi is concerned that we could stay here for a while and he would like the fed -- he is concerned that we should stay here for a while.

We talk a lot about communication and how communicative the federal reserve is.

She would be looking at raising rates in about six months.

There is some nuance there, but it was not a mistake on her part.

She continued to make the point that they are going to keep rates unchanged for some time after we get to certain thresholds.

The phrase she used was considerable period.

She was asked how long?

She defined that as about six months.

People expect the fed to start raising interest rates in 2015 and now they have raised the total level of interest rates.

Everyone is moving forward the date at which they think they will raise rates.

That is why the markets tanked in the middle of her press conference.

There will be a six-month period between quantitative the easing and the beginning of raising rates.

If she is done with quantitative easing in the fall, you can see rate start to go up in the beginning of 2015. that is how i interpreted it.

But it sounds like she is talking about rate hikes in the spring of my 15. -- in the spring of 2015. she twice tried to inform the markets, we are not changing policy.

This statement is not a change in policy.

Do not look at the.

Lots -- dot plots.

The bond markets had a selloff.

This is showing you the challenge they will have in communicating going forward.

The two-year is up by 14 basis points.

.43%, quite a reaction at the short end, which is not what she wanted.

We were watching the live feed.

Jeter cook was front and center listening -- peter cook was front and center.

How would you characterize her communicative style?

She was pretty cool up there.

I noticed a comment about six months.

I am not sure if it really registered.

The specificity may have been a mistake.

I think she felt confidence in her answers.

She spoke at length and spoke quickly.

The one thing that stood out was repetition.

Let's be clear, we are changing the forward policy guidance that we are not changing fed policy.

We need to beat this over the heads of the markets understand what we are doing is not a huge change.

I thought she was pretty calm, pretty cool, and pretty gathered.

Suggested once again not a huge difference between her and ben bernanke.

The way i understand it, and she wants to change the goals.

The unemployment, a specific number.

If you look at so many other measures, the employment picture does not look quite as good as it does from looking at the headline numbers.

Implement baby -- employment may be weaker than it looks.

She wants to scale back quantitative easing and start raising rates in 2015. if the employment picture is weak and inflation is not there, you can keep gassing the engine?

They have given up on a specific target for the unemployment rate.

Now we are in the vague world of qualitative guidance where it is not clear what the thresholds are.

Today the markets challenge the fed on that.

We will look at of a lot of indicators.

None of them are close to the point where we think about hiking interest rates.

It will have to take care of that in speeches.

It will be a tug-of-war between the fed and the markets.

But this is good news for folks like you.

You are needed to help interpret all of this.

We did learn a new word.


What is on her dashboard these days?

It looks like a pilot's dashboard, so many indicators right now.

A lot of stuff.

Long-term unemployed, we do care about them.

We should not ask them out of our calculations.

---- x them out of our calculations.

There is a big -- the bond market does not like qualitative stuff.

There is no number there.

More people -- the interest rates are higher.

This is the number we have to go on.

She said, don't look at this.

Our economy should be improving.

Hold that thought.

This text has been automatically generated. It may not be 100% accurate.


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