What to watch

Yellen to speak today after Fed meeting

Janet Yellen, the new Federal Reserve chair, is affectionately referred to as the “Fairy Godmother of the Bull Market” by investment strategist Edward Yardeni. The reason: Stock prices tend to climb whenever she speaks publicly about the economy and monetary policy.

That bullish correlation is relevant now: Yellen will preside at her first news conference this afternoon after the Fed’s two-day meeting wraps up.

Is “more fairy dust coming from Yellen?” The answer, Yardeni says, is yes. He expects the Fed’s first female chief to live up to her dovish (i.e., market-friendly) reputation. Yardeni expects Yellen to tweak the central bank’s forward “guidance” that supports a longer period of its near zero percent interest rate policy, or ZIRP, despite the improving economy.

That worries Yardeni. He fears ZIRP is “inflating speculative bubbles in markets.” He says more talk of easy money “could set the stage for a stock market melt-up,” especially if the economy picks up when the weather turns warmer. The latest sign of a bubble mentality, he says, is the “excitement” about the impending U.S. IPO offering of Chinese Internet darling Alibaba.

Yardeni wonders what Yellen will do “if the economy comes roaring back this spring and stock prices go vertical.” His guess: She might “raise margin requirements” (or ask investors to pony up more collateral before borrowing money to buy stocks) “to take the air out of any stock bubbles.”