I had to splash water on my face

I had to splash water on my face because I think I’m hearing a more hawkish Janet Yellen in her speech today. There is no question that dovishness runs thick as she is questioning their ability to get inflation and stabilize it around 2% (for reasons she gave like the internet and labor market dynamics) but she is also saying that “it would be imprudent to keep monetary policy on hold until inflation is back to 2%.” She also said that the FOMC “should also be wary of moving too gradually.” We also heard the low inflation thing being “temporary” but also that “inflation may rise more sharply in response to robust labor market conditions than anticipated.” Lastly of note on the hawkish side, “Persistently easy monetary policy might eventually lead to increased leverage.” Of course that has already happened as the US total debt to GDP ratio is above where it was in 2007 but at least she acknowledged it. All else stable and equal (as December meeting is still about 3 months away), the Fed is hiking rates again in December we believe and Janet Yellen is essentially telling us that today.

In response, the 2 yr note yield is up to 1.45% (ahead of the auction in 15 min) and back to an 8 year high, the dollar is at the high of the day and gold is at the low of the day. The stock market continues to be focused on tax reform as seen with the price action in the Russell 2000.

Russell 2000 in Orange up 5.4% over past month, SPX in white up by more than half that at 2.3%.