Janet Yellen's first testimony as Federal Reserve Chair: Key points (Part 1 of 4)
By law, the Federal Reserve Chair has to testify in front of Congress twice a year
Yesterday, Federal Reserve Chair Janet Yellen appeared in front of the House Financial Services Committee for her first semiannual Humphrey-Hawkins testimony. The testimony took several hours and covered a lot of subjects—from monetary policy and the economy to the future of real estate finance, banking regulation, and more. I’ll break down the discussion along its different subjects and then talk about how Yellen’s testimony affects mortgage REITs like Annaly Capital (NLY), American Capital Agency (AGNC), and MFA Financial (MFA). Other securities that will be affected include the mortgage REIT ETF (MORT) and the Treasury ETF (TLT).
Overall, the testimony was largely unsurprising. Yellen made a point in her prepared remarks to say:
- “Turning to monetary policy, let me emphasize that I expect a great deal of continuity in the FOMC’s approach to monetary policy. I served on the Committee as we formulated our current policy strategy and I strongly support that strategy, which is designed to fulfill the Federal Reserve’s statutory mandate of maximum employment and price stability.”
In general, the equity market liked what it heard, and the S&P 500 rallied 20 points while bonds sold off about 6 basis points. Regarding tapering QE (quantitative easing), Yellen followed in Bernanke’s footsteps, indicating that it would take a large change in the U.S. economic outlook to slow tapering or accelerate it. She also addressed asset prices and said that while there are some areas of possible overvaluation (land prices), asset prices aren’t at “worrisome levels” at the moment, and the financial system is much better able to handle stress than it was in 2008. She also said that regulators have made a lot of progress in addressing the Too Big To Fail (or TBTF) issue with the large banks.
Interest rates have been increasing as the Fed removes quantitative easing, but aside from some woes in the emerging markets, we have yet to see any major dislocations from the changing policy.
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