STOCKS SURGE AFTER YELLEN'S BIG TESTIMONY: Here's What You Need To Know

First, the scoreboard:

• Dow: 15,990.7 (+189, +1.2%)
• S&P 500: 1,819.0 (+19.3, +1.0%)
• Nasdaq: 4,189.2 (+41.1, +0.9%)

And now the top stories:

• Janet Yellen appeared before the House Financial Services Committee to deliver the Fed's Semiannual Monetary Policy Report. There really weren't too many big surprises. The bottom line according to TD Securities' Millan Mulraine: "Yellen hawkish on tapering, dovish on policy rate."
• Continuity was the buzzword. "Let me emphasize that I expect a great deal of continuity in the FOMC's approach to monetary policy," she said in her prepared remarks. "If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings."
• So, tapering is largely on track. As for the eventual tightening of monetary policy (i.e. the raising of interest rates), that's a long way's off. "[I]t likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the 2 percent goal," she said.
• UBS economists Drew Matus and Sam Coffin, however, said Yellen offered an odd view of labor market slack. "[S]he downplayed the progress of the unemployment rate and the importance of the unemployment rate itself arguing that the long-term unemployed and the number of workers who are part time but who want full time are also important to gauging the amount of slack in labor markets," they said. "We do not view the long-term unemployed as necessarily "ready for work" and therefore believe that their ability to restrain wage pressures is limited. In other words, the unusually high number of long-term unemployed suggests that the natural rate of unemployment has increased. Indeed, when we have tested various unemployment rates' ability to predict inflation we found that the standard unemployment rate outperforms all other broader measures reported by the Bureau of Labor Statistics. Although we disagree with Yellen regarding the long-term unemployed, our research does suggest that, perhaps unsurprisingly, the number of part-timers does have an impact on restraining inflation."
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