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A not unusually muted reaction to Fed Chair Janet Yellen’s testimony this afternoon, given that she’s come out and said ‘financial conditions in the US have recently become less supportive of growth.’ It doesn’t take a 1st class physicist to recognise that this is essentially another way of saying ‘we raised interest rates before we should have.’
Nothing had fundamentally changed in December, but the Fed decided to ignore the fundamentals and move US monetary policy to a place that’s less supportive of growth. It now appears the markets chose to ignore the Fed in January, preferring the fundamentals, and what do you know? The markets were right – they’ve been reacting to this testimony for the past four weeks.
Augustin Eden, 10 Feb
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