Many people appreciate straight talk. In a day and age when many people beat around the bush, so to speak, honesty, as it is rare, can be refreshing, especially when it comes from those in the halls of power.
Janet Yellen, from what we can tell, is a straight talker. While it is trait that we personally admire, we have come to the conclusion that straight talk may not be appropriate when one is at the helm of the world's largest weapon of economic mass destruction, the Federal Reserve.
On March 19th, Janet Yellen gave her first post Open Market Committee press conference at the Federal Reserve. The press conferences, which began under Ben Bernanke, were meant to clear up any confusion which may have been read into the numbers and written statements provided by the FOMC.
For some reason, perhaps the novelty, the press conferences have taken on a life of their own. The reason for this is that, while the FOMC may have deliberated and arrived at a consensus regarding their curious task, the person who gives the press conference ultimately has the last word and, though the event is meant to be carefully scripted, it cannot help but introduce an element of uncertainty into a process which already defies the laws of economics.
During Yellen's inaugeural press conference, John Hilsenrath of Wall Street Journal called out the fact that there is an upward drift in a dot plot reflecting expectations for short term interest rates of the individuals on the committee, and how one should reconcile that with the guidance given in the FOMC statement.
In her unscripted response to the question, Yellen deflected Hilsenrath from the dot plots and then went on to target the end of 2016 as the time when rates will likely rise. During the press conference, Yellen called out 6.5% as the target for the unemployment rate, and reiterated the enteral 2% target for inflation as triggers for tightening. With unemployment currently at 6.7%, short term rate tightening could be around the corner.
This degree of upside uncertainty, which Yellen interjected as part of her great work at the press conference, managed to spook markets, as, while 2016 may be a long ways off in Yellen's mind, as it would be when one is waiting to obtain their driver's license, for those who are writing bonds today based on the Fed's guidance, 2016 is in many cases a thing of the past, and Yellen's utterances shattered a countless number of assumptions that the bond market had begun to hold dear.
Conjuring credit out of thin air is risky business as it is, and when those who are primarily responsible for it attempt to explain their actions, things can become incoherent in a hurry.
In the near future, we may hear Yellen uttering Nehemiah's refrain the next time she is called to the press conference,
"I am doing a great work, so that I can't come down. Why should the work cease, while I leave it, and come down to you?"
For the last time Yellen came down, fixed income nearly imploded. The risky business of conjuring credit out of thin air is best performed in the dark, if at all.