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5 Things to Watch in Janet Yellen’s Testimony Thursday

1. December Signal

All ears will be listening for Ms. Yellen to affirm recent statements from her colleagues that the Fed remains on track for a December rate increase. Officials signaled after their last meeting that they were getting closer to lifting rates, and needed only a little more evidence that the economy was improving to convince them to move next month. She could point to a handful of indicators the Fed has received since its Nov. 1-2 meeting: employers continued to add jobs at a steady clip in October, annual wage gains accelerated at the fastest pace since June 2009 and consumer spending at retail stores advanced at a healthy pace this fall.

2. Election Fallout

Several Fed officials raised concerns before their November meeting about the possibility for market volatility following the presidential election. Many investors were stunned by Donald Trump’s victory, but stocks have rallied on hopes that the new administration’s policies will boost economic growth along with inflation and interest rates. Still, lawmakers will likely want Ms. Yellen’s view of the market’s reaction – including a rise in government bond yields.

3. Trump Effect

Ms. Yellen will likely be asked to weigh in on the potential economic effects of Mr. Trump’s proposed fiscal policies, including plans to boost infrastructure spending and slash taxes. While the Fed is often reluctant to comment on legislation, there is precedent for Fed chairmen signaling their approval for fiscal stimulus. Central-bank officials have made clear in recent years that they need Congress’s help to further boost economic growth. But some officials have warned that a surge in spending could force Fed officials to raise interest rates faster than they currently expect.

4. Fed Independence

The Fed could face significant political pressure next year under a Trump administration. Republican efforts to alter the Fed’s operations and subject it to greater congressional scrutiny have gained broader support in recent years, and Mr. Trump has made no secret of his disapproval of the Fed. Expect Ms. Yellen to make the case against those efforts, which she has said would erode the Fed’s independence and subject it to political interference that could ultimately harm the economy.

5. Inflation Firming

Republicans on Capitol Hill have complained for years that the Fed’s easy money policies could push inflation up to dangerous levels, but price increases have remained subdued. Recent signs of firming inflation could give GOP lawmakers a new opening to press Ms. Yellen on the Fed’s low-rate policies. Fed officials said in their November policy statement that inflation has “increased somewhat since earlier this year.” They also noted that some investors’ expectations of future inflation “have moved up but remain low.” Ms. Yellen could offer new insight Thursday into how officials view the risk of a sharp upturn in inflation.

Reforming the Federal Reserve a top priority: U.S. House panel head

U.S. Representative Jeb Hensarling, chairman of the House Financial Services Committee, on Wednesday said he would push for the Federal Reserve to be more accountable to Congress.

"Reform of the Federal Reserve remains a top priority," Hensarling said in a Washington speech. "It has to give the American people a greater accounting of its actions."

Hensarling said he expected President-elect Donald Trump would support his push to modify the 2010 financial reform law known as Dodd-Frank, passed in the wake of the 2008 financial crisis. He said the Dodd-Frank legislation put too many constraints on credit markets.

Hensarling said he expected that his reform measure could pass the House of Representatives by early next year. But he said that his plan would face uncertainty in the Senate where Republicans have a majority but Democrats still have a say on legislation.

BOJ's Kuroda: don't have to accept JGB yield gains

Bank of Japan Governor Haruhiko Kuroda said on Thursday he does not have to accept gains in Japanese government bond yields simply because U.S. Treasury yields are rising.

Kuroda, speaking to the upper house financial affairs committee, also said the BOJ could raise or lower its target for 10-year government bond yields depending on economic conditions.

Kuroda spoke after the BOJ launched its first fixed-rate debt purchasing operation to bring down bond yields.

Oil prices fall on U.S. crude stock build, OPEC remains in focus

Crude oil futures dropped on Thursday after official inventory reports indicated a larger-than-expected build in U.S. oil stocks.

Crude inventories in the United States rose by 5.3 million barrels in the week to Nov. 11, compared with expectations for an increase of 1.5million barrels.

The climb in inventories was mainly due to higher imports that averaged 910,000 barrels per day (bpd), according to data released by the U.S. Energy Information Administration on Wednesday.

U.S. benchmark WTI crude CLc1 was down 10 cents, or 0.22 percent, at $45.47 a barrel at 0555 GMT. European ICE Brent LCOc1 crude futures fell 11 cents, or 0.24 percent, to $46.52 per barrel.

Reference: WSJ, Reuters