Slow Train Comin’

Federal Reserve Chair Janet Yellen is testifying before congress today. Her remarks were put out ahead of time and are now being parsed around the world.

Peter Boockvar of the Lindsey Group sums it up below:

After speaking last Friday, Yellen’s comments today were not anything new and she repeated that a “rate rise at some point this year is likely appropriate.” She sounded optimistic that “growth will strengthen over the rest of 2015.” Yellen also is telling markets again that they should not focus on when they will first raise rates but to instead focus on the pace of increases. If there is anything that is certain, the market knows how slow the Fed will be in raising rates, after all, it’s been 9 years since they last hiked rates. She mentioned that US consumer spending has picked up but I guess she didn’t change her speech after yesterday’s retail sales number. International developments were discussed, particularly with Greece and China. On wage growth, she sees “tentative signs of a pickup but growth remains relatively subdued.” Yellen also said slack in the labor market remains which with 93mm people not working, the slack is there but that doesn’t mean they are coming back into the labor market anytime soon at current wage rates. On getting to their 2% inflation target, she still expects it as “transitory factors dissipate.” Hopefully the Q&A will provide some new insights into her thoughts.

I agree with Peter (and Janet) that its the pace that will be more important than the timing of the first one. The good news is, there’s literally nothing in the data that would force a quickening pace, where we stand today.

Attitudes are slowly changing about certain asset classes – have a look at the poor performance in long bonds and REITs this year – and the market mindset will continue to undergo a shift. This is what is supposed to happen.