The Daily Difference: Market Update February 11, 2014

Janet Yellen spoke to the House Financial Services Committee for the first time as Federal Reserve Chairman: a significant event given that, outside of the confirmation process, she has not spoken in front of the House Financial Services Committee since Bill Clinton appointed her as a Fed governor in 1996. A few significant takeaways:

• Unemployment: Yellen said, “the recovery in the labor market is far from complete.”  Further elaborating, Yellen pointed to the demographics of the unemployed: “Those out of a job for more than six months continue to make up an unusually large fraction of the unemployed, and the number of people who are working part time but would prefer a full-time job remains very high. These observations underscore the importance of considering more than the unemployment rate when evaluating the condition of the U.S. labor market.” These remarks have put far less emphasis on the Fed’s initial 6.5% target and have indicated Yellen is looking for a more “holistic” recovery in the labor market, regardless of the headline number.
• Taper: Although Yellen indicated the current pace of reductions in bond purchases will continue, she did emphasized the Fed is not on a pre-set course. If the recovery in employment continues to be weak (December and January represented the weakest two month period for job growth in the last three years), we should expect the market to price in an increased probability of a slowdown in the pace of tapering.