USD: Fed Yellen’s Testimony On 3 Topics To Look For – BofAML

After the troubles of Trump Junior downed the dollar, the next test is Yellen’s testimony. Here is a preview:

Here is their view, courtesy of eFXnews:

Fed Chair Yellen will be testifying in front of the House Financial Services Committee on Wednesday and Senate Banking Committee on Thursday. Her prepared remarks will be released at 8:30 am on Wednesday morning.

In that regard, Bank of America Merrill Lynch Research thinks she will strike a similar tone as she did in the June press conference, emphasizing the Fed’s plans to continue with the policy normalization process.

Specifically BofAML is looking for the following 3 things:

1-  Does she emphasize that financial conditions have continued to ease despite the Fed‘s steps to further tighten monetary policy? 

“In our view, Yellen has to tread carefully with this topic. She is unlikely to be as specific as the discussion in the FOMC minutes and will likely talk more casually about the fact that markets have remained strong and financial conditions have remained easy despite the Fed‘s recent hikes,” BofAML argues. 

2- How does Yellen talk about progress toward the dual mandate?

“We suspect that she will mention that the unemployment rate has been falling faster than expected, reflecting continued solid job growth and revealing a further reduction in slack in the labor market. On inflation, she will likely reiterate her comments from the press conference, arguing that the recent weakness in core measures of inflation are due to special factors and that underlying inflation pressures are building given the drop in the unemployment rate,” BofAML adds. 

3- Does Yellen provide any additional details about the balance sheet policy?

“We suspect that she does not provide any new information here,” BofAML argues.