Yellen's testimony maddeningly unclear on interest rates
Washington
JANET Yellen's vague message may end up surprising markets more than soothing them. The US Federal Reserve chair deftly parried conflicting calls for more patience and higher interest rates in congressional testimony on Tuesday. What she didn't do is offer clarity on the timing of a rate hike.
Ms Yellen proved once again at her semi-annual appearance before Congress that she can keep cool in the hot seat. She smoothly dodged questions from Senator Elizabeth Warren, a major Wall Street critic, on whether a Fed official's harsh comments about some Dodd-Frank financial reforms were appropriate. She even waved around a copy of the Fed's financial audit while pointedly rebutting calls for closer government scrutiny.
But she was also maddeningly unclear. Advocates for an interest rate increase could have interpreted her praise for recent job growth and steady inflation to mean a move is imminent. Concerns about the low percentage of labour market participation and sluggish wage growth, however, may have left those hoping for continued rock-bottom rates reassured.
Ms Yellen also rebuffed senators pressing for more evidence of a hike, indicating that the Fed would only move when it felt economic indicators were just right. Likewise, she pushed back on those wanting the central bank to maintain ultra-low levels indefinitely, reiterating the importance of normalising policy.
The Fed chair's performance seems to have satisfied analysts holding divergent points of view. UBS said in a research note, for example, that Ms Yellen affirmed its opinion that rates will rise in June, while BNP Paribas economists took her testimony to mean a boost won't occur until September.
The failure to give firmer guidance on the timing of a rate increase or the economic conditions that will trigger it means that a policy change will probably come without explicit warning. That offers the Fed valuable flexibility, of course, and it can't offer a detailed script in any event. But while the strategy may calm markets for now, no one likes to be caught off guard.
