This Day On The Street
Continue to site right-arrow
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
TheStreet Open House

3 Things Every Investor Needs to Know About Yellen's Senate Testimony

Stocks in this article: GS JPM BAC

WASHINGTON (TheStreet) -- Federal Reserve Chairman Janet Yellen on Tuesday addressed the Senate Banking Committee, giving few clues as to when the central bank would adjust interest rates and deflecting politicians’ criticisms.

However, the relatively new Fed head delivered her most confident appearance yet and offered us a few main highlights to take away before the big policy-making meeting scheduled in two weeks.

No surprises from the standpoint of monetary policy. Yellen reiterated what we’ve known for months -- that the Fed won’t begin to raise interest rates for a considerable time after the central bank ends its economic stimulus program.

This is the most crucial next step arguably every market in the world is waiting to learn more about. While senators repeatedly mentioned during their questions that the Fed would end its quantitative easing by October -- an assumption gleaned from the latest Federal Open Market Committee Minutes that said many members were considering to close out monetary stimulus by then should the scaling back of asset purchases stay on pace -- Yellen reminded politicians that such action depended on economic data.

Goldman Sachs Earnings Reflect Banking Sector's Troubles

Newport Mining Slides as Gold Price Takes Record Dive

Investors likely can hold onto the confidence that the Fed will end stimulus by October. So between no news on raising interest rates and the near-certainty that bond buying ends in October, we have no change since the June policy-making minutes.

Yellen made it known that she takes the unemployment situation seriously, and maybe personally. Senators pressed the Fed chairman about the unemployment rate, the labor-force participation rate sitting below 63% and the long-term unemployed.

Yellen admitted that the historically low participation rate is due to slack in the labor market, but also that some of it is structural. In other words, many people aren’t finding work because the slow recovery is still strangling the labor market, but others are part of the Baby Boomer generation beginning to retire.

The Fed head unloaded, though, when the topic of long-term unemployment came up.

The government extended long-term unemployment benefits during the early days of the recovery in an effort to support the masses of people who struggled to find any jobs amid the worst U.S. labor market since the Great Depression. But Congress in December chose not to renew unemployment benefits that would extend out past the normal 26 weeks it would allow people to collect insurance.

The argument among many conservative politicians is that this encourages people to not seek jobs but instead simply collect tax dollars for their own benefit.

Yellen on Tuesday argued that there’s a serious loss of lifetime savings when individuals go unemployed for long periods of time, and that it ultimately has a large negative effect on their lives in the future. This, she contended, means that most long-term unemployed aren’t using extended unemployment insurance to simply avoid working, but that they need it amid the slow recovery as they look for any job.

No, inflation still isn’t an issue. The latest consumer price index data showed core inflation (which is a complex way of saying all consumer prices, excluding what they pay for food and gasoline) was nearing the 2% mark. Inflation is a legitimate concern for the economy and classically is the central focus of the Federal Reserve.

Some economists have pointed out that this latest CPI report could be an early sign that inflation will begin to rise much faster than it has in the past years of the recovery.

But Yellen said the Fed remains confident that longer-run inflation will remain within a comfortable target. She said the pace of wage growth still lags what is necessary to meaningfully push up inflation.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link 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

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, 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
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,678.70 +6.10 0.03%
S&P 500 2,057.09 +5.27 0.26%
NASDAQ 4,771.7630 +13.8840 0.29%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs