Yellen: behind the curve - ANZ

Analysts at ANZ explained that it didn’t seem like Yellen’s latest speech would contain much to affect the near-term monetary policy outlook, and that was ultimately the case.

Key Quotes:

"Markets are still pricing the odds of a hike by December at 66%. But what did get some attention were her comments about “plausible ways” that letting the US economy run hot could possibly reverse some of the “supply-side damage” still evident since the crisis.

Now she did warn about the risks of such a strategy and that far more research is needed, but it does seem to give a strong hint about her (and perhaps some other key members of the FOMC’s) thinking.

A hike is being considered – that is clear – but the Fed is certainly not about to remove stimulus aggressively anytime soon. The US curve actually steepened sharply after the speech, suggesting the market still has some faith that central banks can lift inflation – even if that does mean deliberately remaining “behind the curve”."