Investing.com - Federal Reserve (Fed) chair Janet Yellen was scheduled to appear later on Monday with markets waiting to see how Friday’s employment report had affected her outlook for the normalization of U.S. monetary policy.
Yellen will give a speech on the economic outlook and monetary policy to the World Affairs Council of Philadelphia on Monday at 16:30GMT, or 12:30ET, in what will be her last chance to publicly communicate her position on the future path of rate hikes before the Fed officially announces their policy decision on June 15.
The speech is key considering that it begins just 11½ hours before the Fed’s blackout period begins on Tuesday. During each blackout period, Fed officials refrain from expressing their views about macroeconomic developments or monetary policy issues in meetings or conversations with members of the public.
The publication of the May jobs report on Friday sent waves through financial markets as the creation of 38,000 nonfarm payrolls came far below expectations.
Prior to the report, markets were unconvinced that the Fed would raise rates in June, discounting the probability at only 21%, but the odds for a move in July were at 58%.
However, after the disappointing number, markets slashed their expectations for further tightening of monetary policy. Fed fund futures currently price the chance of a hike at the June meeting at only 4%.
In fact, markets no longer consider July to be on the table with the probability having been cut to 31% and the first time the odds pass the 50% threshold is once again for the December meeting with a chance of 63%.
In a May 27 speech, Yellen did say that the economy had not seen "much improvement in wage growth which is suggestive of some slack in the labor market."
Yet it was in that same speech that she suggested that the Fed could move “in the coming months”.
Though markets threw the possibility of a summer rate hike out the window after the jobs report, there was still some question as to whether the worse-than-expected data would really dissuade the Fed from returning to policy normalization.
The May employment data could be an anomaly based on both a telecommunications strike and a drop in construction hiring possibly due to bad weather.
Additionally, although the creation of 38,000 jobs was far below market expectations, the employment report still continued to show a drop in the slack in the labor market.
With the unemployment rate down to 4.7%, several Fed officials had already indicated that the U.S. economy was essentially at full employment.
As Goldman Sachs commented ahead of Yellen’s speech, “We don't believe that one single employment report has dramatically changed her view relative to her relatively constructive May 27 remarks.”
Furthermore, the minutes from the last Fed meeting indicated that beyond labor market conditions strengthening, policymakers were also watching to see if incoming data showed economic conditions picking up in the second quarter.
In forecast updates released on Friday, the Atlanta Fed estimated that second quarter growth would be 2.5%, while the New York Fed summed up that last week’s “conflicting news” still had a “slightly positive effect” on its own projection which settled at 2.4%.
In this regard, market participants will focus not only on Yellen’s assessment of the jobs report, but the economy in general, to confirm if the worst-than-expected job creation was indeed weak enough to sway her previous stance in what will be her last public appearance before the post-decision press conference on June 15.