Janet Yellen spoke on Capitol Hill on Tuesday.
Yellen delivered prepared remarks and fielded questions from members of the Senate Banking Committee for almost three hours.
And via Deutsche Bank’s Joe LaVorgna, here’s the most important thing Yellen said on Tuesday:
“It is important to emphasise that a modification of the forward guidance should not be read as indicating that the Committee will necessarily increase the target range in a couple of meetings. Instead the modification should be understood as reflecting the Committee’s judgment that conditions have improved to the point where it will soon be the case that a change in the target range could be warranted at any meeting.”
LaVorgna said this passage is the most important because it, “suggests to us the Fed is going to moderate its forward guidance at next month’s meeting. This keeps a June rate hike in play, provided the data unfold in the manner that we expect. The Fed wants maximum flexibility and does not want to be bound to date-dependent language.“
In December, the Fed changed it’s “considerable time” language to characterise how long it would wait to raise interest rate to say that it would be “patient” in tightening monetary policy.
There have been diverging opinions on what “patient” means in terms of how long the Fed will wait, but in December Yellen said at her press conference that it would be at least a “couple” meeting before the Fed would look to raise interest rates.
March makes the second meeting — and so no one expects the Fed will raise rates next month — but March could be the beginning of the Fed setting up a path towards tightening.