Fed Chair Yellen Comments 02/14/17

In the prepared text of Fed Chair’s semi-annual monetary policy address to the Senate Banking Committee, Janet Yellen sounded a somewhat hawkish tone. Mrs. Yellen said that a rate increase will likely be appropriate at “one of its upcoming meetings” if inflation and labor market conditions continue to evolve in-line with expectations.

Mrs. Yellen added that waiting too long to remove policy accommodation would pose risks to the economy and could result in a need for a faster pace of rate hikes down the road. She noted recent improvements in labor market conditions and signs that inflation pressures continue to mount.

Janet Yellen also touched on the fiscal side of things, saying that changes in fiscal policy could influence the economic outlook but that it remains too early to know what changes would be put in place and how that could impact the bank’s outlook.

On balance, the statement sounded a tone that was consistent with the view that the market may be underpricing the risk of a possible interest rate hike in March.

Bond yields, both on the short end and the longer end of the Treasury yield curve moved higher. The greenback jumped to a new three-week high against a basket of its major rivals, with its biggest gains coming against the yield-sensitive Japanese yen, which fell to new two-week low in the wake of the Fed Chair’s prepared comments. The euro fell to a one-month trough against the resurgent U.S. dollar.