Fed Chairwoman Janet Yellen testified before Congress today with a hawkish tone that sent gold prices downward and bond yields upwards prior and during her testimony. Gold spot prices were down around $11/oz. toward the end of Yellen’s testimony. The 10-year note rose to 2.5% from 2.43% while the 2-year note yield jumped to as high as 1.25 % from a low of 1.18% during her speech, according to CNBC.
Yellen’s comments strengthened the likelihood of interest rate increases for the foreseeable future, stating that ‘waiting too long’ would be ‘unwise’. She qualified her comments with the warning that raising rates too rapidly could ‘risk disrupting financial markets and push the economy into recession.’
But we’ve heard such data dependent, optimistic statements before. Last year’s rhetoric had a similar ring. Yellen’s strategy has always been to create just enough possibility of a rate increase to keep investors hopeful, but leave enough doubt to excuse the FOMC for not delivering. Even when the Fed delivers, as they did last December, a quarter point doesn’t even begin to approach normalizing rates. The economic woes of 2017 will more likely force the Fed to walk back their December hike rather than move forward with another.
This post was published at Schiffgold on FEBRUARY 14, 2017.