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Yellen Looks to Not Repeat Bernanke's Blunder

Stocks in this article: TLT SPY

NEW YORK (TheStreet) -- Federal Reserve Chair Janet Yellen will try not to disrupt markets during her testimony today, learning from her past mistakes, as well as from those made by her predecessor, Ben Bernanke.

Yellen was scheduled to speak in front of the Joint Economic Committee this morning, with traders hanging on her every word to determine when the Fed will raise benchmark rates.

Yellen's job is to keep the faith in markets by continuing her stance that the economy is improving and that the central bank's stimulus program will continue to be unwound.

If she deviates too far, as she did in March when she suggested rates could rise as soon as six months after tapering ends, stocks could crash lower as the market will be caught off guard.

Although the headline labor market figure looked great last Friday as 288,000 jobs were added in April, many economists see holes in the economy. For example, the labor force declined by 806,000 workers in April, the fourth-largest decline since the Department of Labor began recording the statistic in 1948.

A mixed labor market -- alongside lackluster economic growth -- means that Yellen probably shouldn't be too bold this time around and suggest that rates will rise any sooner than the summer of next year.

If she needs a reminder of the effects a bold prediction can have, she can look at her comments in March and also back to last May when Bernanke hinted that the Fed was considering reducing its stimulus program over the next few meetings.

His comments set off a multi-month decline in iShares Barclays 20+ Year Treasury Bond (TLT), as well as a quick move lower in equities.

For now, the SPDR S&P 500 (SPY) looks to be stuck under large resistance at the 190 level, and other high-beta equity indexes have already sold off earlier this year.

If Yellen is caught off guard at any point during her testimony and says something that differs from the perceived script of the Fed, volatility could spike, leading equities to sell off. TLT Chart
TLT data by YCharts

>>Read More: Yellen Says the Economy to Expand Faster in 2014

>>Read More: The Alibaba Madness Begins

Follow @macroinsights

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

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