Financial stocks have propelled Wall Street to a record as Federal Reserve chair Janet Yellen struck a hawkish tone on the timing of a United States interest rate rise. The Fed raised interest rates in December for just the second time in a decade, and Yellen said the strengthening job market and a modest move higher in inflation should warrant continued, gradual increases in interest rates. "Waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession".
And Yellen reassured investors that although the Fed would discuss its reinvestment policy in coming months, it planned to make sure that any shrinkage in its balance sheet would be "an orderly process".
Over the weekend Fed Vice Chair Stanley Fischer said there was significant uncertainty about USA fiscal policy under the Trump administration, but that the Fed would be strict in meeting targets of creating full employment and getting inflation to 2 percent, according to Reuters. "After all, we think that monetary policy will be tightened by much more than investors are anticipating in the U.S., but generally remain at least as loose as they are expecting elsewhere".
She then repeated a warning about the dangers of too much federal debt. Each of its last four board chairs - Paul Volcker, Alan Greenspan, Ben Bernanke and Janet Yellen - has enjoyed considerable freedom to make his or her mark on the USA economy, for better or for worse.
The chairman stressed that the Fed would not "base current policy on speculation about what may come down the line".
Yellen's semi-annual monetary policy report before the Senate Banking Committee is the first since Donald Trump became president.
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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.
"So all this talk of a three interest rate or four interest rate hike, in my opinion, is baloney".
Senator Elizabeth Warren, the Democrat emerging as Trump's leading critic, quizzed Janet Yellen on Trump's claims that Dodd-Frank was a "disaster" and on his plans to dismantle it.
Results from American International Group Inc.(AIG) and Fossil Group Inc.(FOSL) are due after the close.
Yellen gave them little to work with other than an upbeat view of the economy. "This suggests that the Fed is reasonably confident that the trend is rising", he added.
"People want to put money into that because they want to believe that growth will be stronger, that inflation will be more of an issue - a more normal economy, in other words", said Paul Christopher, head market strategist for Wells Fargo Investment Institute in St. Louis.