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The words that show what Janet Yellen is thinking

An analysis of Janet Yellen's language shows the conflicted position of the Fed chair in predicting monetary policy with the uncertainty of Donald Trump's fiscal plans.

The Federal Reserve announced earlier in December that it would raise interest rates a quarter point, the first rate hike in a year. That ends months of speculation on whether Yellen sees the economy as strong enough to handle tighter monetary policy.

But the question remains how the Fed will react to fiscal spending and potential inflation-inducing actions from the incoming administration.

The words Yellen uses in her statements to the press — and how she responds to their questions — contain important indicators for what she's thinking and potential policies coming from the Fed in 2017 and throughout a Trump presidency.

As Deutsche Bank economist Torsten Slok recently pointed out, use of the term "gradual" during Fed news conferences has fallen through the year, just as use of the word "fiscal" has risen. In December, "fiscal" was said 20 times during the conference, while it was never mentioned in the central bank's first press conference of the year, back in March.

But it's important to note that it's not Yellen talking about fiscal policy: She only said it twice in the statement she gave before taking reporters' questions at the December Federal Open Market Committee meeting. Reporters pushing her to comment on potential Fed reactions to fiscal policy used the word "fiscal" 12 times, while she used it six times in her responses.

The dichotomy of words used between Yellen and reporters shows the conflicted place the chair is in. The public — through business journalists and investors — hang on her every word, and what she says can move the market. But there are limits to what she can and will discuss, and predicting Fed policy based on theoretical presidential and congressional action is unreliable.

So she's naturally resistant to saying anything too conclusive, of reaching too far. Still, the increased use of the term "fiscal" shows the changing narrative.

Since Trump was elected in early November, the S&P 500 has climbed nearly 5 percent and has hit record levels multiple times. But market observers worry that increased value from the president-elect's potential deregulation measures has already been priced in to many stocks. Further, many top economists don't foresee the booming economy Trump expects from his policies.

Some of the market optimism is thanks to Trump's promise to substantially boost infrastructure spending as a way to increase jobs. That has observers wondering about the Fed's response to fiscal stimulus. An rise in spending too could spur increased inflation: Trump has been sketchy on the details, but experts say the infrastructure spending could cost $1 trillion or more. That could push the Fed to raise rates further and faster if inflation follows.

Despite that looming issue, talk of inflation at Fed meetings has gone down, especially among reporters. "Inflation" or "inflationary" was said 25 times in the December meeting, down from 67 in March and a low for the year.

Use of the word "monetary" fell in December to seven times, down from 19 in September, while "fiscal" rose overall.

Unemployment has fallen significantly in the last years of the Obama administration and hit a nine-year low of 4.6 percent in November. Use of the words "employment" and "unemployment" has remained relatively steady at Fed news conferences in 2016.