Developing…

It doesn’t look like there’s much in Yellen’s remarks regarding whether or to what extent the Fed would step in to address risks to financial stability.

Further, I’m not seeing a whole lot here that has the potential to alter anyone’s views on balance sheet timing or the trajectory of policy normalization, but maybe that’s just my read.

So far, FX is reading it as dovish – or so it seems from the reaction.

Here’s USD/JPY, DXY, and EUR/USD in descending order:

Dollar

 

And here are the highlights from Yellen’s speech in Jackson Hole via Bloomberg:

  • Fed’s Janet Yellen said more resilient, post-crisis U.S. financial system “is better prepared to absorb, rather than amplify, adverse shocks,” yet “there is more work to do” and “we can never be sure that new crises will not occur.”
  • Policy makers, investors should continue to monitor indicators of financial-system resilience, Yellen said Friday in text of speech at Kansas City Fed’s annual symposium in Jackson Hole, Wyoming.
    • “All-too-familiar risks of excessive optimism, leverage, and maturity transformation” will re-emerge “sooner or later” in new ways that require policy responses, given technology, regulation and evolution of financial system
    • Market-based measures may not reflect true risks; supervisory metrics “are not perfect, either”
  • Evidence shows that post-crisis reforms have made the financial system “substantially safer”
    • Credit default swaps for large banks suggest market participants are assigning low odds to distress of a large U.S. bank
    • Market-based assessments of the loss-absorbing capacity of big U.S. banks have moved up, and measures of equity now in range of book estimates
  • Market liquidity for corporate bonds remains “robust overall”
    • Healthy condition of the market is apparent in low bid-ask spreads, large volume of corporate-bond issuance
    • Even so, “liquidity conditions are clearly evolving”; some regulations “may be affecting market liquidity somewhat”; may be benefits to simplifying parts of Volcker rule
  • New regulatory framework has made dealers more resilient to shocks; any adjustments to framework should be “modest”
  • Broader set of changes may deserve consideration, such as simplifying regulatory changes for small/medium-sized banks
  • “Not altogether surprising” to see conflicting research results on effects of capital regulation on credit availability
    • Credit may be less available to some borrowers, even if it’s “not readily apparent” that there are material adverse effects of regulation on broad lending measures
    • Credit appears broadly available to small businesses with solid histories
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