Janet Yellen could be losing patience. And that could mean a lot for global markets.
When the chair of the Federal Reserve said Wednesday that stocks were overvalued and bond yields too low, it was a signal that investors should not expect to indulge on the Fed's cheap dollars forever.
But after a knee-jerk reaction to the warning, two days later Wall Street was back near record highs and bond yields even lower than before Yellen spoke.
The reason? Friday's April jobs report that suggested the economy still has some ways to go to meet the Fed's criteria for beginning to raise interest rates. And that means more easy money for investors.
When Yellen became Fed chair 15 months ago the path ahead seemed clear: end the huge quantitative easing stimulus program of her predecessor, Ben Bernanke, in October 2014, and then after around six months begin raising interest rates.
That was the path toward "normalization," easing out of the crisis-era monetary policy that had the Fed pumping trillions of dollars into the economy even with its benchmark interest rate stuck at zero for six years.
It was nearing the time to normalize. As 2014 progressed, the United States generated more than 3 million new jobs and the unemployment rate sank toward the Fed's target.
Inflation, which the Fed wants to bring to 2.0 percent, did not pick up, but there were reasons for that, like the oil price crash.
Meanwhile, the easy money policy was fueling stock and property speculators while its impact on overall growth was starting to diminish.
The Fed repeatedly implied that a rate rise could come around mid-year 2015. In March, it sent a major signal for the coming hike, by dropping from its policy statement a pledge to remain "patient" for the economic data to improve.
But since then, patient is what the Fed has had to be. US economic growth stalled in the first quarter, and markets read that as meaning a longer wait for a rate rise, even though the Fed stressed that the slowdown was mainly for "transitory" reasons, like the severe winter weather.
- Yellen sees market 'dangers' -
Yellen made clear this week that she is concerned that markets have too easily shrugged off a rate hike and the turmoil it could bring to markets.
Stock valuations "generally are quite high," she said at a finance forum Wednesday. "There are potential dangers there."
Bond markets were risky too. "We need to be attentive to the possibility that when Fed decides it's time to begin raising rates, these term premiums could move up and we could see a sharp jump in long term rates," she said.
Stocks took the calculated message at face value, sinking sharply, while bond yields spiked higher -- for all of two days.
Then came the April jobs report which suggested the winter slowdown was not completely past. The job creation number was pretty strong, and unemployment fell to 5.4 percent.
But there was no sign of rising wages -- an indicator Yellen herself has focused on to show labor market tightening.
Moreover, the labor force participation rate, the measure of what percent of working-age Americans are actually working or seeking jobs, remained at a post-2008 crisis low of 62.8 percent, compared to more than 66 percent before the crisis.
This indicates that millions of people have dropped out of the workforce, discouraged by the paucity of jobs and the low wages on offer. And if wages don't rise, consumer spending and economic momentum stay weak.
"This dynamic means there’s more slack in the job market than the relatively low unemployment rate suggests," said Jared Bernstein, a former White House economist with the Center on Budget and Policy Priorities.
Yellen is clearly caught between the economy and markets in deciding the first rate rise. While her primary guide has to be the economic data, she cannot ignore potential bubbles in asset markets, even if those markets ignore her.
That could mean breaking the ice even if the economy still shows weakness, some analysts say.
"She seems to be hinting that they're going to have to raise rates one way or the other as long as the economy is growing at all," said Chris Low, chief economist at FTN Financial.