Why Yellen didn't rock the market

We already knew what she was going to say because, these days, the Federal Reserve can't stop talking about its plans. It wasn't always this way.

By MSN Money Partner Jul 15, 2014 3:58PM
Credit: © J. Scott Applewhite/AP Photo
Caption: Federal Reserve Chair Janet YellenBy Rex Nutting, MarketWatch

Humphrey-Hawkins Day used to mean something, but when Janet Yellen (pictured) went to Capitol Hill Tuesday to testify on the state of the economy, investors didn’t pay much attention.

We already knew what she was going to say because, these days, the Federal Reserve can barely shut up about what it thinks and what it plans to do.

These days, Yellen has plenty of other opportunities to explain herself and the deliberations of the Federal Open Market Committee. The Fed chairwoman doesn't need to wait for her ritual appearances in front of the House Financial Services Committee and the Senate Banking Committee. 

Yellen holds press conferences and conducts on-the-record interviews. The FOMC itself releases a long explanation after each meeting, and includes detailed forecasts and assumptions about the course of the economy every quarter. We even have a "dot plot" showing where each member thinks the federal funds rate will be years from now.

It wasn't always this way. It used to be that the Fed was a black box, and no one really knew what went on inside. No one even knew that the Fed had raised or lowered the federal funds rate until days later when the market figured it out on its own.

To counter that secrecy, the Congress passed a law to require the Fed head to appear before Congress twice a year to explain himself or herself. The requirement was part of the Humphrey-Hawkins Full Employment Act of 1978, which is why the testimony was called Humphrey-Hawkins for so long.

For years, Fed chairmen like Alan Greenspan, Paul Volcker and William Miller used their Humphrey-Hawkins testimony to send messages to the markets. The release of the chairman's testimony to the news wires, the publication of the FOMC's official forecasts and the chairman's ad hoc replies to questions consumed the attention of the bond market, the stock market and the currency market.

Humphrey-Hawkins Day was often one of the biggest days of the year in the markets, as the new information in the testimony forced traders and investors to completely revise their thinking about what the Fed would do.

Greenspan was the master of using Humphrey-Hawkins Day to announce market-moving information.

During Greenspan's 18 years at the Fed, market volatility was about twice as great on Humphrey-Hawkins Day than it was on other days. The yield on the 10-year Treasury note moved an average of 8.3 basis points every time he testified, compared with an average daily move of 4.5 basis points during his tenure.

In his six H-H testimonies from July 1995 to July 1999, Greenspan moved the 10-year yield by at least 10 basis points every time he testified. On Feb. 20, 1996, for example, it jumped 25 basis points, as much as it would have if the Fed had surprised the market with a rate hike.

By contrast, Ben Bernanke’s Humphrey-Hawkins appearances hardly moved the market at all, with the 10-year yield rising or falling an average of 3.4 basis points. Bernanke moved the 10-year by 10 basis points only once: on July 21, 2009.

The first time Yellen has testified, on Feb. 11, the 10-year rose by 5 basis points. This time, as of noon, the 10-year was down 1 basis point.

A twice-a-year trip to the Hill just doesn't pack the punch it once did. The Fed has found more efficient ways to communicate with the markets. And that's why Yellen didn't make much news, or move the markets Tuesday.

More from MarketWatch

Jul 15, 2014 4:53PM
Hate her or Love her, but Elizabeth Warren called out Aunt Yellen on the Banks. They are much bigger and a Far bigger threat to the Global Economy. Aunt Yellen basically couldn't and or wouldn't answer her questions. The Global Feds are the Problem, Epic Fall will be the Solution. What will rise from the ashes.
Jul 15, 2014 5:42PM
It's really time to drag garbage like Yellen out into the open and REQUIRE answers to key questions. Financial tyranny is a crime. It causes wars because it turns prosperity to destitution. There hasn't been ANY PROOF that QE did anyone but the wealthy any good. Banks & Financials are plump (like Yellen herself) with assets. What else has it accomplished? The average person KNOWS this has been terrorism. We break in unannounced and KILL terrorists, don't we? Why are we tolerated this?
Close the Fed. Close the banks. Get RID of Wall Street. 
Jul 15, 2014 4:33PM
I used to say every time Greenspan opened his big mouth I lost money. (401k). I prefer it the way it is now.
Jul 15, 2014 4:51PM
Greenspan, Uncle Ben, and Aunt Yellen are all Bought and Paid for Crooks of Wallstreet. They have never cared about Main-street. Trickle Down economics, that's exactly the BS economy we still have Today. Obama will never had the -B- to be anyone different then all the other, Bought and Paid for Government officials.

Jul 15, 2014 4:39PM
Judge her if you will but its better than Alan Greenspan using supply side economics and having to testify in front of Congress on how wrong he was to be using outdated policies meant for the Reagan era.   For all you Reaganites out there, voodoo/supply side economics may have worked for a few years around his admin, but given time with tech advances and the shifts in the demand for labor it killed off the middle class.  All trickle down has done is made the wage gap wider year after year.  How are we to fix it?  Do you like a flat economy for the next 20 years?
Jul 18, 2014 1:44AM
Small investors like myself are getting creamed ever since Yellen's reckless remarks about social media stocks.  It's one thing to talk about the economy in general but she has no business pontificating about individual stocks and micro sectors.  Social media = Facebook and Twitter - both of which have dived lower since the Fed Chair singled them out.  Right or wrong her newly acquired bully-pulpit demands more discretion.  Time to grow up Ms. Yellen!
Jul 15, 2014 10:00PM
Old Yeller is hot.I wish she would do a spread for penthouse.
Jul 16, 2014 8:15AM
nowshe is giving investment advice...whats next?   cooking dinner for dimon???
Jul 15, 2014 4:53PM
Don't be saying nothing bad about my Aunt Jannie...No you don't..!!
Jul 16, 2014 8:10AM
Cause everybody listen to Warren Buffet
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