All eyes are on Janet Yellen this week as she gives her speech to the Kansas City Fed’s Economic Policy Symposium.
Traders will be listening to the Fed chair for any clues that might reveal the timing and direction of monetary.
But Bank of America Merrill Lynch economist Ethan Harris warns against reading too into the market’s reaction on the day of the speech.
“Looking back, the signals from the Chairman speeches are clearer in hindsight than in real time,” he writes. “For example, Chart 2 compares the change in 10-year yields on the day of Bernanke’s speech at Jackson Hole to the change in yields over the rest of the year. Sometimes the speech provides a hint of things to come, but overall, there is no correlation between market response to the speech and the market movement over the rest of the year.”
The Jackson Hole symposium became famous in 2010 when then-Fed Chairman Ben Bernanke prepared the world for QE2, a second round of stimulative bond purchases.
“The Fed did eventually adopt QE2 , but it wasn’t until three months later, after a long string of additional hints,” said Harris. “The “urban legend” is that Bernanke clearly signaled QE2 at Jackson Hole; the truth is he nudged along an idea that was already in the works.”
Harris’ scatter plot reveals little correlation between the bond market’s response on the day of the speech and its move during the balance of the year. If there were, the dots would form a straight line from the bottom left to the top right.
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