Top central bankers choose their words carefully. They know sending the wrong signals can unleash havoc, and they’ll get blamed for it. More important, as masters in acrobatic flip-flopping and backpedaling, they rarely promise a specific outcome.
So when a Fed official does say anything definitive, I pay attention—because it’s almost never an accident.
Last week, I did a double take when I saw this Reuters headline:
That’s an unusually bold statement for any Fed leader, much less the chair.
It sure would be nice if Yellen were right. We’d all go to our graves (hopefully not too soon) without ever having seen another financial crisis.
Not so fast, though. Let’s see exactly what Yellen meant, and what it means for your investment strategy.
Photo: AP
“We’re Much Safer”
Here is the Reuters lead:
U.S. Federal Reserve Chair Janet Yellen said on Tuesday that she does not believe that there will be another financial crisis for at least as long as she lives, thanks largely to reforms of the banking system since the 2007-09 crash.
“Would I say there will never, ever be another financial crisis?” Yellen said at a question-and-answer event in London.
“You know probably that would be going too far, but I do think we’re much safer, and I hope that it will not be in our lifetimes and I don’t believe it will be,” she said.
This was a head-scratcher to me. While it wasn’t a prepared text, Yellen would still never say anything like this by accident.
It seemed as if she wanted to say it and was looking for an opportunity to do so. We found out why the next day.
Photo: AP
Banks Pass the Test
Last Wednesday, the Fed released the second half of the results of its annual bank stress tests. All 34 top US banks passed—for the first time since the post-2008 crisis reforms took effect.
In practical terms, that means the banks can distribute more capital to shareholders as dividends and stock buybacks.
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