At This Moment: Fed Chair Janet Yellen Wraps up Day Two of Testimony

An overview of market movement following Fed Chair Janet Yellen’s Congressional Testimony and overall economic activity from the Fed’s Beige Book. DC Federal Reserve Bank
3 min read

Fed Chair Janet Yellen just wrapped up her second day of Congressional appearances. Yesterday she delivered prepared testimony to the House Financial Services Committee and answered Representatives questions. Today she spoke before the Senate Banking Committee, where she delivered the same prepared remarks and answered Senator’s questions.

Ms. Yellen’s prepared testimony echoed statements Fed Governor Lael Brainard said in a speech on Tuesday: the Federal Open Market Committee plans to gradually unwind its $4.5 trillion balance sheet by limiting its policy of reinvesting the proceeds from maturing bonds and they might not need to hike rates as much as some were expecting.

In Ms. Yellen’s remarks yesterday, she said “because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance.” There isn’t a date set for the start of the balance sheet reduction and, as always, there is uncertainty regarding the timing and size of future rate hikes.

How Did Markets React?

Comments from Fed Governor Brainard on Tuesday, and from Fed Chair Janet Yellen’s Congressional appearance, were widely interpreted as dovish. On Wednesday, the Dow ($DJI) climbed to a new high, the S&P 500 (SPX) hit its second-highest close ever, and the Nasdaq (COMP) had its largest four-day gain since November. Persistently low rates have been one factor that’s made stocks more attractive than bonds to some investors.

Bond prices also rose as yields dropped yesterday (the two move inversely). The 10-year treasury yield saw its largest decline in a month, dropping 3.7 basis points to 2.313%. The U.S. two-year note dropped 2.8 basis points to 1.351% and the U.S. 30-year bond declined 3.1 basis points to 2.906%. Trading in the U.S. dollar was choppy and also fell to a new low for the month. In addition to a packed week of Fed appearances, it also released its Beige Book. 

Federal Reserve 10 Year Treasury Index


The CBOE 10-year Treasury Index (TNX), shown on the  TD Ameritrade thinkorswim® platform, tracks the yield of 10-year Treasury Notes. Treasury yields dropped the last two days as Fed Governors and Fed Chair Janet Yellen spoke. Data source: CBOE. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results. 

If you want more information about what’s happening in the markets, and a look at upcoming events, check out TD Ameritrade Chief Strategist JJ Kinahan’s Market Update

The Beige Book is Out: National Summary of Economic Activity

The Beige Book is published eight times a year to provide information about current economic conditions across the Federal Reserve’s Districts. According to the Beige Book, “economic activity expanded across all twelve Federal Reserve Districts in June, with the pace of growth ranging from slight to moderate.” Regarding overall economic activity, the Fed provided these highlights:

  1. Consumer spending appears to be rising across a majority of Districts, led by increases in non-auto retail sales and tourism. However, many Districts noted some softening in consumer spending, particularly in auto sales which declined in half of the Districts.
  2. Manufacturing and nonfinancial services activity continued to grow, with most Districts reporting modest to moderate gains since the last report.
  3. Loan demand was steady to increasing in most Districts.
  4. Residential and nonresidential construction activity was flat to expanding in most Districts. Most Districts cited low home inventory levels in certain market segments which were constraining home sales in many areas.
  5. Agricultural conditions were mixed across the nation as moisture conditions varied considerably; several Districts continued to report weakness in dairy and some crop sectors due to low prices.
  6. Energy activity generally improved since the last survey, particularly for oil and natural gas. Coal production remained sluggish although higher than year-ago levels.

Today’s Testimony

Similar to previous Congressional appearances by the Fed Chair, there usually isn’t much information shared on the second day of testimony. Looking ahead, the next Fed meeting is July 25-26, which does not include a summary of economic projections and a press conference. The minutes for that meeting will come out 3 weeks after, when traders will likely be looking for additional information about the Fed’s plan to unwind its balance sheet.

In other economic news, June’s Producer Price Index was released today, up 0.1% versus expectations for a flat reading, and tomorrow the Consumer Price Index will be released along with Retail Sales. Markets could see some volatility depending on the results of those two.

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