As Federal Reserve Chair Janet Yellen testified before the Senate banking committee on Tuesday, bond prices surged and rates sank, with the 10-year Treasury yield falling below 2 percent.
Traders clearly took her words to be more dovish (that is, more supportive of easy monetary policy) than anticipated. And as a result of the testimony, the federal funds futures have pushed expectations for the first rate hike further out in the year, so that the base case is now for an October rate hike, according to CME Group’s FedWatch tool. (Never mind that no news conference is scheduled to follow the October statement, so the chance of a major policy change actually being enacted in October is small.)
While Yellen’s testimony held no great surprises, she did clarify in her prepared remarks that the Fed’s insistence that it will stay “patient” in normalizing monetary policy means that the federal funds rate will not be raised “for at least the next couple of FOMC meetings.”