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Profit From A Fed That Clearly Has Decisiveness Issues


  • Yellen's testimony on Wednesday was a total reversal from hawkish comments made by Fed presidents last week.
  • Another round of QE seems eventually inevitable at this point.
  • Move some capital to commodities and out of U.S. equities.

By Thom Lachenmann with Scott Tzu

If there's one thing that Janet Yellen's testimony today proved, it is that the Federal Reserve doesn't seem to have any type of consistent clue whatsoever on what it wants its future monetary policy to look like. The market was just starting to pare back slightly over the last week or two as a result of some hawkish comments out of individual Fed presidents a couple weeks ago indicating that the Fed may start to tighten its balance sheet and continue to raise rates in a clinical fashion despite economic data showing that everything wasn't exactly going according to plan.

In true FOMC fashion, this morning's testimony from Janet Yellen was essentially a complete and total reversal from some of the comments out last week. Yellen offered about the largest dovish softball she could possibly lob out in front of Congress with regard to future monetary policy. During her testimony, she made it clear that while the Federal Reserve is looking to tighten its balance sheet, using its balance sheet for more monetary stimulus going forward wasn't out of the question. In fact, the tone with which she made this comment made it seem as though more economic stimulus is actually the likely solution going forward from the Fed's standpoint.

The second bombshell that Yellen dropped today was the fact that she doesn't expect the neutral rate to be much higher than the current interest rates. While she claimed several times over that the Fed would likely continue to inch rates higher over a gradual time span, her comments are anything but hawkish and they gave us the indication that the current rate hike pattern may slow down substantially and ultimately culminate in its entirety somewhere between 1.5% and 2.5% (our estimates), depending on how bad the next couple

This article was written by

Contributors: Scott Tzu, Parke Shall, Thom Lachenmann (contributors write under pen names for anonymity purposes) Please read Seeking Alpha's Policy on Anonymous Contributors to familiarize yourself with the site's terms and conditions relating to anonymous authors.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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