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GETTING TO KNOW YELLEN - By WSS Research Desk

Nov. 14, 2013 2:39 PM ET
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

David Urani

Today the market gets its first big opportunity to get a feel for soon-to-be Fed Chairwoman Yellen as Congress picks her brain. I would argue that Janet Yellen is now the most powerful woman in the world, and you might be surprised how many market-watchers would say she's the most powerful person, period. So the market is inclined to listen. Of course, we've known all along that perhaps while not a huge difference from Ben Bernanke policy-wise she has a reputation of being a little more dovish. Investors smell that already, as the market has been given a lift since she took the stand at 10:00.

Weekly jobless claims also came out this morning, and they've been in a bit of a vague patch lately following the government shutdown in October that not only caused some turbulence in the labor market but also in the government's reporting of that data. That's unfortunate because it's one of my favorite data points and it became unreliable for a while, and could still be. That said claims for the week ending November 9 were down to 339k from 341k the prior week. It declined, yes, but the Street (ourselves included) wanted it to fall more.

As a reminder, weekly claims at the end of September were running at 308k and things were looking swell in the job market. The government shutdown shot claims all the way up to 373k in early October and while we've come down from there we're still not sitting nearly as pretty as in September. The question remains whether claims are set to continue to revert back to those low September levels, or if the labor market has indeed softened in the past month.

Yellen in the Hot Seat on Capitol Hill
By Jennifer Coombs

Capitol Hill was abuzz today with the Confirmation Hearing of the incoming Fed Chairwoman, Janet Yellen. Overall she responded well to the tough questions and the market approved by reacting positively. The current vice Fed chair noted in her opening statements that she fully believes in a transparent Central Bank that functions best when the public understands what and how the Fed is doing. Yellen noted that the inflationary goal remains around 2 percent and inflation should remain low and stable in the future. The unemployment is the natural rate (5-6%) though remains difficult currently at 7.3 percent. To the contentment of Wall Street and the market, Yellen said she would use her regulatory role to reduce the threat of future crisis by creating stability among banks and enabling them to withstand turmoil better in the future.

When asked how should would lead the Fed into promoting a drive for robust economic growth, Yellen replied that there are dangers in ending QE too early and holding the program too long. The objective is to insure a robust economic recovery with improved unemployment and controlled inflation. That said she made clear that the economy is still fragile and it is too soon to withdraw support. The Fed Funds rate has remained consistently low for the last 4 years.

One of the biggest concerns of investors is just how much lower interest rates will go and for how long. She notes that housing prices are moving up and auto sales have recovered thanks to lower interest rates, and while this current program cannot continue forever, they will closely monitor improvements in the jobs market and the private sector before returning interest rates to normal levels. Senator Corker noted that Yellen has never voted against a rate increase (27 times) in her time at the Federal Reserve. She said that low interest rates have had a positive effect on asset prices and have to a large extent boosted the stock market, but the Fed should never be a prisoner of the stock market and may have to make measures that indirectly upset the stock market.

In the end it looks like she will be successfully confirmed as Fed Chair though many on Capitol Hill view her as Bernanke's arm rather than an independent powerhouse. At least two Republican senators have already noted that they will try and block her nomination over broader concerns in the Fed's transparency and operations. Odds are high that she will be confirmed but two things are quite certain in our view: 1) interest rates will remain low for several years to come which will discourage people from saving money in the near-term though many are still discouraged from borrowing and 2) investors will continue to cling to precious metals (gold and silver spiked during her hearing) and higher yielding investments. Ultimately it seems as though the status quo set by Bernanke will continue with Yellen and any quick fixes to monetary stability are still far off... we shall remain vigilant. Ben Bernanke will relinquish his post effective January 31, 2014.

https://www.wstreet.com/user/register.asp?source=3

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