Coverage: All ears tuned to Yellen’s speech

Federal Reserve Board chairwoman Janet Yellen will give a speech Monday at lunch, and investors are eager to hear what she has to say about interest rates after Friday’s weak job report.

Mamta Badkar of The Financial Times has a preview:

Investors will tune in to Ms Yellen’s speech to the World Affairs Council of Philadelphia on Monday as they continue to digest Friday’s disappointing jobs report. “Markets will be waiting with bated breath to see whether she strikes a more hawkish tone or one of continued cautiousness ahead of the June FOMC meeting,” said economists at Bank of America.

Following weak job growth numbers, expectations for a rate rise in June slid to just 2 per cent, while odds of a move in July nearly halved to 27.5 per cent from a day earlier, according to Bloomberg calculations of movements in federal funds futures.

The slow pace of hiring comes in contrast to recent hawkish commentary from a handful of Fed officials and from comments in the latest Beige Book, which indicated “tight labour markets were widely noted” across the 12 reporting districts.

Investors will also keep an eye on the Jolts report that Ms Yellen tracks. Economists expect there to have been 5.65m job openings in April, down from 5.76m the previous month.

Greg Robb of MarketWatch.com writes that Yellen may be engaging in spin control during her speech:

Rather than paving the way for an interest rate hike, the Fed chairwoman will likely use her speech in Philadelphia, due to start at 12:30 p.m. Eastern, to dampen speculation that the Fed will soon have to reverse course and seek new ways to stimulate the economy.

Grave doubts about the economy are bound to surface in the wake of the weak May payroll data, said Nathaniel Karp, director of economic research at BBVA Compass.

Job growth was the weakest in almost six years in May, well below market expectations. Downward revisions to the prior two months added to the grim picture.

In the wake of the data, Yellen’s goal will be to contain the negative reaction and keep it from “snowballing into other parts of the economy,” Karp said.

Negative views on the outlook can become self-fulfilling, especially if consumers decide to limit spending, he said.

Jon Hilsenrath and Kate Davidson of The Wall Street Journal report that the Fed may have already tipped its hand on Friday:

“We cannot take the resilience of our recovery for granted,” Fed governor Lael Brainard said in a speech Friday after the weak employment report, potentially foreshadowing Ms. Yellen’s approach. Though the two women don’t always see eye-to-eye, they are both cautious about raising rates.

“In this environment, prudent risk management implies there is a benefit to waiting for additional data to provide confidence that domestic activity has rebounded strongly and reassurance that near-term international events will not derail progress toward our goals,” Ms. Brainard said at the Council on Foreign Relations.

Before Friday, when the Labor Department reported that hiring slowed sharply in May, Fed officials were considering lifting rates this month or next.

“Today’s labor market report is sobering, and suggests that the labor market has slowed,” Ms. Brainard said Friday.