A balanced Yellen - BAML

By FXstreet.com | Updated July 30, 2014 AAA

FXStreet (Guatemala) - Priya Misra, Rates Strategist at BAML noted that one of the most consistent messages from Fed Chair Janet Yellen has been that of a balanced approach.

Key Quotes

"One of the most consistent messages from Fed Chair Janet Yellen has been that of a balanced approach - that when there is a conflict between its objectives, the Fed would tolerate some movement in the opposite direction if the distance from one of the objectives is large. So far this approach has not really been tested - the labor-market recovery is far from satisfactory and inflation has been running well below the Fed's target."

"However, recent inflation readings have been strong and fairly broad based. This runs the risk of inflation reaching the Fed's target sooner than its forecast implies (in 2016). "

"At the press conference last week, Chair Yellen provided a clue about the Fed's response to such a scenario by reiterating the balanced approach. Given the work that remains on the unemployment front, the Fed would not prematurely tighten policy. When asked about the tolerance around overshooting the inflation target, Yellen noted that a "prolonged period" of above or below the target is not desirable."

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