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Janet Yellen: Deuces?

Greetings and farewell from Jackson Hole.
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One thing you could say about Janet Yellen is that she knows how not to exceed expectations. In what could be her final address at the annual Jackson Hole monetary policy sleepaway camp, the Fed chair charted a precision course between the over- and underwhelming. Her remarks concerned financial stability (about which, hooray, we're there), and they steered almost entirely clear of monetary policy (about which, meh, don't ask). But some observers still managed to get a message out of all of it: J-Yell is hanging up her gloves:


"Fed Chair Janet Yellen’s passionate defence of the post-crisis tightening of financial regulation isn’t going to go down particularly well at the White House," wrote Paul Ashworth, economist at Capital Economics, in a research note following the speech. "Donald Trump has made rolling back regulation the centre-piece of his presidency."

This assumption derives from the fact that Yellen used her address to celebrate a set of post-crisis rules that, according to Donald Trump and his subordinates Gary Cohn and Jamie Dimon, have made banks blacklist small businesses and kneecap the American economy. So by offering a fist-pumping vindication of capital buffers and stress tests, this thinking goes, Yellen essentially told the Fed chair search committee to inquire elsewhere. As Pedro da Costa concludes:

It's not a message the Trump team is likely to heed, but it's certainly one that cements Yellen's own personal exit strategy.

But there's reason to be skeptical that Yellen just gave her swan song. It's not like her views on prudential regulation were a mystery before. And even in a speech largely supportive of the Dodd-Frank regime, she threw out a few deregulatory bones. On liquidity, for instance:

While no single factor appears to be the predominant cause of the evolution of market liquidity, some regulations may be affecting market liquidity somewhat. There may be benefits to simplifying aspects of the Volcker rule, which limits proprietary trading by banking firms, and to reviewing the interaction of the enhanced supplementary leverage ratio with risk-based capital requirements.

And on mortgage availability:

Currently, many factors are likely affecting mortgage lending, including changes in market perceptions of the risk associated with mortgage lending; changes in practices at the government-sponsored enterprises and the Federal Housing Administration; changes in technology that may be contributing to entry by nonbank lenders; changes in consumer protection regulations; and, perhaps to a limited degree, changes in capital and liquidity regulations within the banking sector.

Beyond making Goldman very happy, Yellen's openness to tinkering with Volcker and capital rules aligns with whatever it is, if anything, Cohn means with his New Modern Twenty-First Century Glass-Steagall. These issues are at the top of the regulatory reform checklist for both the administration and the bank lobby. And since Congress is unlikely to expend the effort needed for a total finreg overhaul, the reforms we'll actually end up seeing will probably hem more closely to Yellen's cautious approach than the “dismantle-Dodd-Frank” promise of candidate Trump.

Thus there's been some pushback to the Yellen-retirement story. Here's Carl Tannenbaum, chief economist at Northern Trust:

“I’ve seen odds that there is only a 25% chance she is reappointed. If I had a nickel I might take a punt she stays,” he said. Yellen is a “known quantity” and represents some level of stability in Washington, he said.

So there. Yellen leaves us where we started. Another J-Yell classic.


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