James Pethokoukis summarizes the conventional wisdom about Janet Yellen’s first run-in with the media yesterday:
A “market rattling” press-conference performance from Janet Yellen, and Wall Street is suddenly thick with Ben Bernanke nostalgia. “The more experienced Bernanke knew to avoid clarifying deliberately vague statement language,” wrote JPMorgan economist Michael Feroli in a research note. Feroli was referencing Yellen’s squishy, off-the-cuff remark that interest rate hikes might start earlier rather than later next year, or “about six months” after the end of the central bank’s bond buying program. A “rookie gaffe” is how economist Paul Edelstein of IHS Global Insight put it.
You can find about a million stories like this. But as much as I like to mock the panicky nature of Wall Street traders, I think everyone needs to take a deep breath here. As you can see in the chart above, the S&P 500 lost a whopping 1 percent of its value for a grand total of about 24 hours. By 1 pm today it was right back where it had been for the two days prior to the Fed meeting.
The numbers tell the tale: It’s pretty obvious that Yellen, in fact, had only a tiny, transient effect on the market—exactly the same kind of effect Bernanke used to have whenever analysts trained their Wittgensteinian microscopes on, say, the precise linguistic difference between “extended” and “protracted.” In the end, a few morons lost money by overreacting to Yellen’s comments, and that’s about it. This is not exactly a rare event in global high finance.