The Federal Reserve Chairwoman, Janet Yellen gave her two-day annual testimony to Congress last week where she defended the central bank’s monetary policy and reiterated the Fed’s view that rate hikes will be coming.
The Fed Chair Janet Yellen concluded her two-day semi-annual testimony to the U.S. Congress last week as she defended the Fed’s monetary policy actions and the post-2008 financial crisis banking rules which the current Trump administration is expected to undo. The rather complacent markets got a jolt after the Fed chair signaled that a March rate hike was still on the table.
Speaking to lawmakers, the Federal Reserve Chair Janet Yellen sounded determined to keep the rate hikes coming this year as she hinted that a rate hike at the next policy meeting is still on the table. Considering that the markets were giving low odds for a March rate hike, Ms. Yellen’s comments caught the market by surprise, and this was later supported by fresh data that showed U.S. consumer prices shot past the Fed’s 2% inflation target rate alongside rising retail sales figures as well.
The Fed Chair also clarified during the Senate questioning that the central bank doesn’t have to wait for the fiscal stimulus in order to hike interest rates. “Waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession,†Ms. Yellen said.
Following her hawkish comments, U.S. Treasuries fell as the 10-year note yields rose to nearly 2.48% on Tuesday and also pushed the probability of a March rate hike slightly higher, alongside pushing the U.S. dollar index to post a fresh one-month high. The markets are still skeptical about the Fed’s three rate hikes this year with the probability of a June rate hike higher than that of March, which also indicates a faster pace of rate hikes, contrary to what Ms. Yellen told lawmakers this week.
