Fed Chair Yellen’s Semiannual Monetary Policy Report to the Congress

Yellen’s testimony was largely a repeat of what we heard last week. A few quotes from the speech are below, but basically Ms. Yellen has not deviated from recent rhetoric.

The market will look to the Q&A at 10:30am for further clues.

“…while labor market conditions have improved substantially, they are, in the FOMC’s judgment, not yet consistent with maximum employment.”

“…The available data suggest a moderate pace of GDP growth in the second quarter as these influences dissipate. Notably, consumer spending has picked up, and sales of motor vehicles in May and June were strong, suggesting that many households have both the wherewithal and the confidence to purchase big-ticket items.”

“Looking forward, prospects are favorable for further improvement in the U.S. labor market and the economy more broadly.”

“…some of the headwinds restraining economic growth, including the effects of dollar appreciation on net exports and the effect of lower oil prices on capital spending, should diminish over time. As a result, the FOMC expects U.S. GDP growth to strengthen over the remainder of this year and the unemployment rate to decline gradually.”

“Foreign developments, in particular, pose some risks to U.S. growth. Most notably, although the recovery in the euro area appears to have gained a firmer footing, the situation in Greece remains difficult. And China continues to grapple with the challenges posed by high debt, weak property markets, and volatile financial conditions. But economic growth abroad could also pick up more quickly than observers generally anticipate, providing additional support for U.S. economic activity.”

“…the 12-month change in the PCE price index is likely to remain near its recent low level in the near term. My colleagues and I continue to expect that as the effects of these transitory factors dissipate and as the labor market improves further, inflation will move gradually back toward our 2 percent objective over the medium term.”

“If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy. Indeed, most participants in June projected that an increase in the federal funds target range would likely become appropriate before year-end. But let me emphasize again that these are projections based on the anticipated path of the economy, not statements of intent to raise rates at any particular time.”

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