What Does the Dove Say?

Janet Yellen speaks before the Senate Banking Committee this morning at 10am. She’s released her brief address beforehand and will probably be answering a wealth of questions, especially on the idea of the taper.

Livestream here on C-SPAN’s site

Here’s BofA Merrill’s US Economics team with a preview:

The taper question, ultimately
Yellen states that “supporting the recovery today is the surest path to a more normal
approach to monetary policy” — in other words, policy needs to remain easy now to
tighten later. Additionally, “a strong recovery will ultimately enable the Fed to reduce
its monetary accommodation and reliance on unconventional policy tools such as
asset purchases.” Early commentary focused on the word “ultimately” as a possible
signal that Yellen does not plan to taper for a while. But “reduce its monetary
accommodation” typically has meant rate hikes in official Fed communication, while
reducing “reliance on unconventional tools” likely refers to the eventual reduction in
the size of the Fed’s balance sheet rather than tapering. Recall, most Fed officials
take a “stock approach” to QE; in that view it’s the total amount of assets owned and
not the purchase pace that defines the degree of accommodation. No doubt she’ll
get questions about the Fed’s tapering plans on Thursday.

Expect market participants to be hanging on her every word…

Fine, sorry. Here: