Yellen With A Side Of Dove

Yellen With A Side Of Dove

As we predicted, Janet Yellen did not surprise, although she added some dovish overtones to the tune that the Fed, through the FOMC, is singing.

Yellen was herself "surprised" by the government estimates of disappointing job growth in December and January, but warned against "jumping to conclusions" in drawing a picture of longer-term trends.

She emphasized that the recovery of the labor market was "far from complete." That was a recurrent theme in her testimony before the House Financial Services Committee today. Yellen said she regarded the low level of employment as a problem that monetary policy had some power to improve, rejecting the idea that oft-cited demographic factors, like an aging population, were solely responsible.

"I am inclined to believe... based on the evidence that there are also cyclical factors at work," she said.

Significantly, Yellen also highlighted the Fed's regulatory responsibilities, saying, "The work of making the financial system more robust has not yet been completed."

There is an internal debate among FOMC members, some of whom see the shift in demographics as the main factor behind the stagnant figures in the number of people participating in the workforce. Others take a more nuanced approach, saying, in effect, that if the jobs were available, those older people who have been pushed out of the workforce and still can't find employment, would work if positions were available. It seems a chicken and egg problem. 

indeed, if someone is between 62 and say, 68, why wouldn't they take Social Security and/or other retirement benefits and just be done with it? Many have done that, but among them are those who are marginal workers - temps, laborers, unskilled people - for whom younger, cheaper and perceived "more valuable" workers seem reasonable replacements for employers. Also, employers may not want to train older candidates for jobs in which they may only work a year or two. 

The entire world has known this issue was approaching. Baby Boomers are a notoriously enormous demographic cohort. Yet, of those Baby Boomers who are still in the workforce, the unemployment rate is quite low. The danger is in young, undertrained or improperly trained people. Even a too-large percentage of college graduates are struggling to find good jobs.

Barron's backed us up concerning what we said yesterday on the role of Chinese buyers of gold. From Steven M. Sears:

"Reports that buying in China rose 41% last year to a new record suggest Chinese investors are under the spell of gold, perhaps because of concerns about the stability of their own economy... 

"The trade thesis is largely predicated on an eastern retelling of a tale well-known to American investors: an economy weakened by financial sector excesses that drives citizens to buy something they think is a safe asset.

 "Troubles in China are now regularly mentioned as key risks to the global economy. It is reasonable to conclude that Chinese investors might be interested in gold for the same reasons that not-so-long-ago captivated many Americans: economic weakness, inflation, debased currencies, and perhaps even civil unrest."

Meanwhile gold bulls also await news on what India will do with its import tax on gold. They seem to be budging. Or thinking about budging, at least.

We don't want to become the radio station that plays "All Yellen All The Time," but she did make a few very dovish statements that truly call for clarification in follow up notes. Or perhaps we shall get such clarification when she testifies before the Senate on Thursday.

Yellen said that a "highly accommodative policy will remain appropriate for a considerable time" after QE money printing ends while reiterating the Fed's position that tapering is "not on a preset course."