By Changing This One Word, Janet Yellen Now Sounds A Little More Hawkish
Overall, her tone remains dovish, implying that monetary policy will continue to stay easy for some time.
But Capital Economics' Paul Ashworth flagged one tweak in her language.
"In light of the improvement evident in the employment, production and sales data for March, she is now willing to concede that "a significant part" of the earlier softness in the incoming data was weather-related," said Ashworth. "Last month's FOMC statement only went as far as claiming that the weather was "in part" to blame."
Catching those one-word changes is the epitome of Fedspeak parse-manship.
Here's the context from Yellen's March FOMC statement:
Information received since the Federal Open Market Committee met in January indicates that growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable...
And here's what she said today:
...The FOMC's current outlook for continued, moderate growth is little changed from last fall. In recent months, some indicators have been notably weak, requiring us to judge whether the data are signaling a material change in the outlook. The unusually harsh winter weather in much of the nation has complicated this judgment, but my FOMC colleagues and I generally believe that a significant part of the recent softness was weather related.
The continued improvement in labor market conditions has been important in this judgment. The unemployment rate, at 6.7 percent, has fallen three-tenths of 1 percentage point since late last year. Broader measures of unemployment that include workers marginally attached to the labor force and those working part time for economic reasons have fallen a bit more than the headline unemployment rate, and labor force participation, which had been falling, has ticked up this year...
The implication is that if you can blame more of the deceleration on weather, then the underlying economy is actually stronger. And if the Fed thinks the economy is strong, then it is more likely to tighten sooner than later.
"She was also willing to concede that some of the broader measures of labour market slack that she follows "have fallen a bit more than the headline unemployment rate"," added Ashworth. "Nevertheless she is sticking to her guns, claiming again that "other data suggest that there may be more slack in labour markets than indicated by the unemployment rate.""
Follow our complete coverage of Yellen's speech at BusinessInsider.com.