Janet Yellen becomes a data dependent hawk.

Janet Yellen wants to become a hawk. 2017 is the year of the "Yellen Collar". This fact is currently underappreciated by financial markets. 

Accipiter yellenis 

A 2016 headline in the The Financial Times stated, "Doves ascendant in Janet Yellen’s Federal Reserve."

Janet Yellen has been a dove's dove. Throughout Chair Yellen's career, a wide-variety of economic situations led her to loose monetary policy in the form of low interest rates and quantitative easing.  

The Chair Yellen, the prescription has been consistent: 

• Unemployment too high? Solution, loose money. 
• Inflation too low? Solution, loose money. 
• Not sure about the economy? Solution, loose money. 
• Brexit fears? Solution, loose money. 

Janet Yellen has spent her life as a DOVE

It is perhaps ironic that the world's greatest dove leads the Fed into what might be its most significant tightening cycle ever. 

Chair Yellen has been crystal clear in that she wants to raise rates a lot. At the Jackson Hole conference in 2016, Chair Yellen argued that short term rates should rise from 0.5% to at least 3%.  For years, chair Yellen has stated a desire to unwind some of the Fed's balance sheet bloat created by quantitative easing. 

A combination of persistent interest rate rises, and shrinking of the Fed's balance sheet, would be enormously significant to financial markets. 

It is the biggest financial issue of year, and perhaps since the Fed was created. 

2017+ Fed tightening could be historic

The Fed's official mandate is stable prices and low unemployment. The Fed's unofficial mandate is keep the stock market from crashing. 

The Fed is likely to tighten monetary policy persistently, until the stock market responds. How much weight can the market take? We will find out soon.