This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Yellen Speech, Fed Data Send Mixed Messages; What's an Investor to Do?

It's a good time to be job hunting in places such as Silicon Valley, Naples, Fla., and Madison, Wis., and an especially good time to be a construction worker in Dallas. That list will get longer as labor markets tighten.

The usual media potshot after a news day like this is to ding the Fed for hazy communication -- but that's not really fair. The industrial production numbers are what they are -- and can't be cooked. And the sincerity of Yellen's commitment to the 7.4 million people involuntarily working part-time, or the 36% of unemployed people who have been on the street for six months or longer, isn't in doubt.

But the conflict between the Fed's communications and its data underscores that events will overtake Yellen's dovish monetary policy, probably sooner than you think. Remember, just as the Fed is now forecasting that unemployment won't move down much this year, so too did the central bank think in early 2012 that joblessness would stay as high as 8.5% through year-end. When the unemployment rate hit 7.8% in time for the election, we were reminded (again) that even central banks are fallible. 

The next three months will be crucial to determining how long the Fed's historic levels of dovishness can hold out. If -- a big if, given a soft report yesterday on housing starts -- new-home construction bounces back hard in the spring, then most of the economy's major cylinders will be firing. But inflationary pressures should still be modest, especially if employers can offset the impact of slightly higher wages with more productivity growth. That should be easy, since productivity has just posted its worst three-year stretch since the Reagan years. 

If the summer economy produces growth around a 3.5% annual rate, as Naroff expects, by fall the Fed will have a much tougher communications challenge than any it has faced while the economy has been weak. Until now, all stimulus, all the time has been the clear remedy. That will no longer be true: Lower unemployment will be pointing to higher rates, low inflation may seem to allow more stimulus, and wage growth may point to some policy in between. Yellen acknowledged this yesterday, saying that the central bank will need "a more nuanced judgment about when the recovery of the labor market will be materially complete."

Still, the new Fed chair is a beat behind where the economy is, as she sticks up for her kitchen-table constituency. Facts are changing on the ground, and that's going to make the Fed and its new leader show how nimble they can be. And how well they can explain all this new nuance to markets that are still easily rattled.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $126.60 0.94%
FB $86.91 1.34%
GOOG $521.88 0.26%
TSLA $269.07 0.30%
YHOO $39.33 0.10%

Markets

DOW 17,757.91 +138.40 0.79%
S&P 500 2,077.42 +14.31 0.69%
NASDAQ 5,013.1230 +26.2560 0.53%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs