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Fed Head Has Impact By Stilling Discordant Voices

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When the head of the Fed speaks, people tend to listen more than they do to the secondary (non-voting) members. And today, Federal Reserve Chairwoman Janet Yellen delivered a crystal clear message.

The time is now less propitious than this past December when the Fed dared to raise rates. Here are a few words and phrases that she used to describe conditions and how the Fed would probably act in the near term: cautiously; too early to tell; the inflation outlook has also become somewhat more uncertain; market turbulence, and, slightly weaker.

Not exactly party-hat talk, is it? Yet there are many observers – some within the Fed – that are interpreting Yellen’s speech before the Economic Club of New York as neutral, as opposed to dovish. (The prepared remarks certainly weren’t hawkish.)

We feel it is a strong affirmation of the new release outlook and comments following the last FOMC meeting in mid March. The “slightly weaker” cited above refers to the condition of the global economy although there was some verbal shilly-shally regarding just how important that weakness is to the U.S. economy. It’s hard to believe a weaker world would help the American economy.

U.S. markets took a decidedly undecided stance. Equities seemed to like Yellen’s words, all three major indexes up on the day, even if not terribly strongly.

Somewhat counter-intuitively, gold rose significantly, even if much of the gain was from a weaker U.S. dollar. The entire precious metals complex was up on the session, platinum grabbing the title as strongest in show with a 2.45% uptick.

The dollar weakness was ranged across the whole spectrum of the currency basket. The buck was down against the yen, which implies the Japanese currency is being utilized as a haven. The same scenario held true for the Swiss franc, another haven currency.

Over in the bond department, yields on the 10-year Treasury fell, another sign that haven, or at least breathing room, was being purchased. Face prices would naturally be up.

Crude oil took a beating today, the biggest loser due mostly to the news that Iran is considered now not planning to freeze output in the near to mid term.

We have been saying for some time that there is far too much crude already in the marketplace and an impressive amount “out there,” just waiting to be tapped. Where either the souped-up demand or a serious reduction in production and supply might come from truly escapes us.

Interestingly, Yellen’s remarks spooked oil as well as she said we should be prepared for oil prices to go lower again. This is, no doubt related to her appraisal that the world economy is still slowing.

West Texas Intermediate and Brent North Sea oils were both down around 2.5% in late afternoon trading.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer