The election of Donald Trump as president had done nothing to change the Federal Reserve’s plans for a rate increase "relatively soon", Dr Yellen said in congressional testimony that included a pledge to serve out her term.
Craigs Investment Partners broker Chris Timms said Dr Yellen’s commentary sent treasury bond rates lower and yields on the 10-year note towards 2.25%.
Yields had moved aggressively higher since the US presidential election, driven by expectations Mr Trump’s presidency would expand the budget deficit by cutting taxes and boosting spending and inflation, he said.
European and Japanese yields also rose yesterday after the Bank of Japan surprised the market by saying it would buy an unlimited amount of Japanese government bonds in order to bring down yields.
In her testimony, Dr Yellen said the US central bank would change its outlook as necessary as the new administration rolled out plans for perhaps hundreds of billions of dollars in tax cuts and additional government spending. She also suggested the new government keep in mind the US was near full employment and inflation might be rising.
"Markets are anticipating ... a fiscal package that involves a net expansionary stance of policy and that in a context of an economy that is operating reasonably close to maximum employment with inflation heading back to 2%," she said.
Dr Yellen also suggested new programmes focused on policies to improve long-run growth and productivity.
Reuters reported there had been some uncertainty about how Dr Yellen would engage with a new president who at turns during the campaign spoke favourably of the Fed’s low rate policies, and yet also accused the Fed of acting politically to help Democratic nominee Hillary Clinton.
While the election had not yet affected matters, they might find themselves at odds if Mr Trump, for example, pursues a rollback of financial regulations.
