What will Yellen say about rate policy to Congress?

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The federal reserve has raised interest rates three times since December, and many analysts believe a further hike is imminent in the autumn. The bank cited recent strong data that bolstered confidence in stronger growth.

Ms Yellen was also pressed about loans given by Deutsche Bank to Donald Trump, but said that the Fed had not been looking at transactions involving the president.

US Treasury yields slipped after the comments from the Fed officials, Benchmark 10-year notes US10YT=RR last rose 4/32 in price to yield 2.3569 percent, from 2.371 per cent late on Monday. Likewise, business investment has accelerated, the Fed said after being weak for much of 2016, helped by a surge in spending on drilling and mining activity.

Ms Yellen also reconfirmed her commitment to begin unwinding the Fed's colossal $4.5 trillion balance sheet this year. Should Yellen express a hawkish tone regarding monetary policy, or even hint at some form of timeframe for changes, then the US Dollar will likely strengthen against the Euro, conversely, if she expresses a cautious attitude then fed rate hike speculation will dampen, reducing demand for the "Greenback".

What has been undercovered by the media is that the Federal Reserve already may be nearing more of a neutral stance on rates rather than this current low-rate environment being accommodative.


Stocks are reacting to Fed Chair Janet Yellen's relatively dovish congressional testimony, with her appearance before the House Financial Services Committee now underway.

However, Yellen said there was uncertainty about how inflation would respond to shrinking slack in the economy.

The Fed board governor Lael Brainard said she believed the USA central bank should begin unwinding its balance sheet soon, but she would want to "move cautiously on further increases in the federal funds rate" to help push inflation higher toward its target. However, she acknowledged that the Fed was uncertain about when USA inflation would pick up as a response to the strengthening economy. The big question is: will Yellen focus on the upside or the downside? Yellen's opening statement will be released at 8:30 a.m. Wednesday and her hearing before the House Financial Services Committee starts at 10 a.m., followed by the Senate Banking Committee the next day.

She concluded her remarks by saying that "the committee would be prepared to use its full range of tools, including altering the size and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved exclusively by reducing the federal funds rate".

If they ask one thing, lawmakers ought to pin down where she stands in a key debate splitting the policy-setting Federal Open Market Committee.

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