By Yasin Ebrahim
Investing.com – The dollar climbed Tuesday, as investors mulled the potential of a sooner rather later rate hike after Treasury Secretary Janet Yellen said rates may need to rise to stop the economy from running too hot.
The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, rose 0.38%, to 91.29.
"It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat," Yellen said Tuesday during an economic seminar presented by The Atlantic. "Even though the additional spending is relatively small relative to the size of the economy, it could cause some very modest increases in interest rates."
The move sent shockwaves throughout the market as it was only just a week ago that the Federal Open Market Committee voted to leave rates unchanged and indicated that it was in no rush to rein in loose monetary policy measures.
Fed Chairman Jerome Powell has repeatedly batted away questions concerning inflation and the prospect of tapering bond purchases. The Fed chief has insisted that inflation pressures will prove transitory and flagged "substantial progress" on the economy as benchmark for the central bank to start thinking about tapering.
While the talk of the tightening monetary policy will not come as surprise to market participants "it's who said it that matters and especially after she [Yellen dismissed inflation risk this past weekend," Scotia Economics said in a note. "It’s highly unusual for a Treasury Secretary to comment on Fed policy and usually best avoided."