What Yellen Said And What She Didn’t Say

“It could be appropriate” to act at the Fed’s final policy-making meeting of the year in mid December, Fed Chairwoman Janet Yellen told the House Financial Services Committee.

She said the American economy was “performing well,” hinting that if growth continued apace, the Fed could start raising interest rates next month. She added a warning, however: “No decision has been made.”

"If the incoming information supports that expectation then our statement indicates that December would be a live possibility," Yellen said at a congressional hearing on financial regulation.

As usual, the decision will rest upon the incoming data released between now and December 15-16. We get out first taste of that data on Friday when new jobs creation figures for October are released.

ADP, the company that monitors private job creation, said they saw 182,000 new jobs turn up in October. Although it makes little difference, experts were expecting 180,000.

The figure was about 21% lower than those from October of 2014.

The last three months (August through October) have seen the creation on average of 184,000 jobs per month. By comparison the three-month period from October to December 2014 saw an average of 263,000 new private jobs, according to ADP.

Why is Yellen saying what she said today? Employment gains are slowing and inflation is still muted, at best, non-existent at worst.

Your economy can’t grow much if you don’t have inflation.

The U.S. dollar jumped on the Yellen comments. Bond yields climbed as well.

The rising dollar and general market sentiment pushed gold prices to four-week lows, although earlier in the day the precious metal had made some minor gains. The decline of nearly $9.00 was due almost entirely to greenback strength.

Crude oil also looks as if it started to come back down to earth, dropping 3.3% on the dollar strength, like gold, but also on higher inventories (an estimated 100 million barrels), and on the unremittingly high production levels by OPEC, led by the Saudis.

The equities were caught in the same crosscurrents – Yellen and the U.S. dollar – and struggled to not give back too much of the gains made recently. The equities largely succeeded.

Stocks were also somewhat affected by the fall in crude oil prices and the rising buck.

We think Wall Street will eventually shrug off the rate rise whenever it comes. Yellen gave them the best advice: look past the first rate hike. We would add, Look far past it.

Wishing you as always, good trading,