US Economic Notes:Yellen testimony preview,Steady as she goe

Commentary for Wednesday: Fed Chair Yellen's semi-annual monetary policytestimony will be the main event today. Since Yellen will be speaking on behalf ofthe FOMC, her testimony should largely adhere to the June 14meeting statementand her post-meeting press conference remarks. We expect Yellen to present arelatively upbeat outlook and continue to guide market participants toward thecommencement of balance sheet normalization as well as another rate hikeby yearend. In our view, the Fed will most likely pause its rate hiking cycle atthe September 20meeting to announce the tapering of reinvestments, whichwould ostensibly begin in October. If there are no meaningful dislocations infinancial markets related to tapering and incoming data continue to support theCommittee's growth and inflation outlook, we expect the Fed to resume hikingat the December 13meeting.

    With respect to the Fed's employment mandate, Yellen will be sure to highlightthat aggregate income growth implied from the most recent employment datawas solid last quarter and points to a robust rebound in Q2real GDP. Case inpoint, the payroll proxy for income, which takes the product of private payrolls,average hourly earnings and average weekly hours, was up 5.2% annualized lastquarter—the best performance since Q22014(5.4%). This is a key reason wecontinue to expect 2.8% real GDP growth in Q2and an even stronger 3% gainin the current quarter

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