Yellen´s Testimony: Surprisingly Bullish

And the markets reacted accordingly. Stocks up, dollar and long-term yields down.

Dudley may be unhappy that financial conditions were loosened…

To Yellen, inflation should rebound (as they have been saying for the past several years), but now recognizes that if softness persists, the Fed will act accordingly…

“It’s premature to reach the judgment that we’re not on the path to 2% inflation over the next couple of years,” Ms. Yellen said Wednesday, during a hearing of the House Financial Services Committee. She repeated her view that an increasingly tight labor market would put upward pressure on wages and prices, but added, “We’re watching this very closely and stand ready to adjust our policy if it appears that the inflation undershoot will be persistent.”

The market knows low inflation will persist.

What comes out is that she adopted the language of the more bullish (or less hawkish) members.

Unfortunately, she still does not recognize that the Fed is “flying blind”!

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