Investing.com – As Federal Reserve (Fed) chair Janet Yellen gave testimony on the economy to the Senate Banking Committee Tuesday, markets made slightly more hawkish adjustments to their outlook for the central bank to hike interest rates in 2017.
Yellen repeated her warning that “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.”
She noted that incoming data continued to suggest a strengthening labor market and that inflation was moving towards the Fed’s 2% target and that further changes to monetary policy would be data dependent.
“At our upcoming meetings, the Committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” Yellen clarified.
After the publication of the speech, the dollar strengthened against major rivals, passing from slight losses to hit intraday highs at 101.30.
At the same time, gold pared gains. Both a strong greenback and higher interest rates are typically bearish for the precious metal, which is denominated in dollars and struggles to compete with yield-bearing assets when borrowing costs rise.
Fed fund futures also increased the odds on policy tightening with the chances for a move in March initially increasing to 22%, from 13% before the speech was published. As of 10:40AM ET (15:40GMT), markets had since reduced bets to around 18%, according to Investing.com's Fed Rate Monitor Tool.
Markets continued to consider June as the most likely month for a first rate increase, though odds increased slightly from around 64% to 68%.
More notably, odds for a second rate hike edged passed the 50% threshold for November after the remarks were released.
In any case, markets remained skeptical on the Fed’s median call for three rate hikes this year, leaving the odds at only 41%.