Federal Reserve Chair Janet Yellen is set to testify on the economy before the Joint Economic Committee on Wednesday, and foreign exchange strategists are watching her remarks for their implications across asset classes.
Boris Schlossberg of BK Asset Management believes that even though Yellen's tenure as chair is coming to a close, her testimony on the outlook for 2018 will still carry weight in the market, and her comments have the potential to prove quite bullish. Here are Schlossberg's reasons.
• Yellen is underrated as one of the best economic forecasters. Should she provide a confident guide for next year, equity, bond and currency markets would collectively see a boost.
• Yellen's remarks on inflation, specifically, will be of particular interest to the market. Given the muted nature of various measures of inflation this year (gauged by consumer price index or personal consumption expenditures), her view for inflation will be the key feature to watch.
• The market will be paying close attention to Yellen's outlook on regulation, especially after her designated successor, Federal Reserve Governor Jerome Powell, told a Senate committee Tuesday that he favors stringent regulation for larger financial institutions and less so for smaller banks.
• If Yellen expresses strong confidence that the Fed is going to tighten further, the U.S. 10-year yield could move up to 2.45 percent and the could see a move up to the 112.0 mark.
Bottom line: Even as her tenure comes to a close, Federal Reserve Chair Janet Yellen's congressional testimony on Wednesday could have wide-reaching implications for different markets.