Janet Yellen Strays From the Party Line

by Greg Valliere, AGF Management Ltd.

EXCESSIVE CANDOR IS A MIXED BLESSING in Washington, where spinning is an art form. So here comes Janet Yellen, who should know better, spilling the beans over what the Fed might do as the economy heats up.

YELLEN IS NOT SIMPLY ANOTHER TREASURY SECRETARY, she’s the ultimate Federal Reserve insider, privy to the Fed’s thinking about the economy and interest rates. Her skills as an economist are unquestioned, but her political skills perhaps are still evolving.

HERE’S WHAT SHE SAID, ESSENTIALLY: Yes, we’ve spent a ton of money and we want to spend a ton more. If that leads to inflationary pressures, that could be temporary — or the Fed could deal with it by raising interest rates a little.

ONE CAN ONLY IMAGINE THE REACTION BY JEROME POWELL: The Fed Chairman has steadfastly refused to speculate about rate hikes; he doesn’t even want to talk about tapering the central bank’s $120 billion in monthly asset purchases.

YELLEN’S SUGGESTION GENERATED A BRIEF MARKET SELLOFF, but by evening she was back on message, offering assurances that inflation won’t be a problem. But it already is a problem (see: lumber and housing prices, gasoline, labor shortages, etc.).

THE TREASURY SECRETARY has to be concerned about an over-heating economy. Non-farm jobs are expected to surge by over 1 million in Friday’s unemployment report — perhaps quite a bit higher — and some forecasters expect a second quarter GDP rise of 10%.

WE HAVE WRITTEN CONSISTENTLY SINCE WINTER that the U.S. economy will be near full employment by the end of this year, and our outlook has not changed. Now we know that Yellen and possibly Powell have thought about that scenario, and a rate hike (or tapering) may have to come much more quickly than Powell has indicated in public testimony.

THANKS IN PART TO YELLEN’S COMMENTS, the Fed will have to address its thinking on over-heating, inflation, and monetary policy. This debate will be percolating at the Jackson Hole Fed conference in late August — if not sooner. The June 15-16 FOMC meeting just got a lot more interesting.




The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
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This post was first published at the AGF Perspectives Blog.
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