The US dollar jumped in value as Federal Reserve chair Janet Yellen told Congress a delay in raising interest rates could be "unwise" if the US economy continues to perform well, despite uncertainty around the outlook. Indeed, while Yellen declined to specify how fiscal policies will impact the pace at which the Fed will remove its monetary policy accommodation, waiting too long would be "unwise" and could potentially force the FOMC to raise rates too quickly, disrupting financial markets, and raising the risk of a USA recession.
The Fed chair says there is "considerable uncertainty" about the economic outlook because of possible changes in government spending, taxes, productivity growth, and developments overseas.
"Though our base case is that the Fed may not raise rates next month, a March hike is still very much on the table", Rieder said in a blog post Friday.
Before Yellen took the hot seat Thursday, Richmond Fed President Jeffrey Lacker said it's "pretty clear" any new fiscal policies will require higher rates.
Financial markets specialist Professor James Angel from Georgetown University explained why: "Often politicians will want central banks to do things that are short term expedient, but long term risky for the economy".
Richmond Fed President Jeffrey Lacker said the central bank will likely have to raise rates more rapidly than the markets now expect given that any new policies by the Trump administration, while uncertain, will force the Fed's hand.
Yellen starts her testimony before the Senate Banking Committee at 10:00 a.m. ET (1500 GMT). During the financial crisis, the Fed purchased large-scale assets to hold down long-term interest rates. Business sentiment has continued to improve in recent months, while inflation has moved up, as the effects of earlier declines in energy and import prices have diminished, Yellen said.
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Her comments on monetary policy gave few additional hints on the timing of the Fed's next rate increase and how many of them were planned for 2017, as she repeated familiar statements that "monetary policy is not on a preset course". His resignation, effective in early April, will create a third vacancy on the seven-member board for Trump to fill.
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Beyond Dodd-Frank, Yellen could be pressed about Republican efforts to diminish the Fed's independence, in part by subjecting it to more intensive audits.
"She seemed more hawkish than the market expected", said Michael Arone, chief investment strategist at State Street Global Advisors, meaning more prone to hike interest rates.
As is customary for the Fed chair, Yellen is scheduled to testify again on Wednesday before the House Financial Services Committee.
The Standard & Poor's 500 index rose 9.33 points, or 0.4 percent, to 2,337.58 for its sixth straight day of gains.
The dollar also got a lift from Trump's promise last week of a "phenomenal" tax plan that the White House said would include tax cuts for businesses and individuals.