Yellen told the U.S. Senate Banking Committee the central bank will likely need to raise interest rates at one of its upcoming meetings, although she expressed caution amid considerable uncertainty over economic policy under the Trump administration. Sydney's S&P-ASX 200 gained 0.9 per cent to 5,809.10.
Besides these domestic economic reports, an important event is on the calendar today, as Fed Chairwoman Yellen will testify before the House Financial Services Committee. The dollar's run of daily gains is now its longest since the peak of the euro zone's debt crisis in 2012. Compared with the same month past year, costs paid by Americans for goods and services rose 2.5 percent, the most since March 2012.
Yellen was nevertheless unequivocal on the impact of limiting immigration to the U.S. United Kingdom inflation has jumped to 1.8% - a more than two-year high - and there's concern that salaries may not be keeping up, which would hurt consumers' spending power. Earlier Wednesday, the government reported retail sales grew 0.4 percent last month, and consumer prices jumped 0.6 percent for their biggest monthly increase in almost four years.
To sum up, Yellen's testimony was more hawkish than previous statements made by her. In remarks prepared for posting to the Dallas Fed website, Dallas Fed chief Robert Kaplan called for gradual interest rate increases.
"Markets are pricing in a higher probability of a March rate hike but it's not a done deal", said Chris Scicluna, head of economic research at Daiwa Capital Markets.
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However, not all Fed policymakers are convinced, that the US central bank should act soon to tighten monetary policy.
More evidence that inflation has taken hold in the USA economy spurred bets that the Federal Reserve is clear to raise interest rates as soon as March, fueling a selloff in Treasuries and lifting the dollar. Lockhart added, that "I don't really see compelling reasons to move ahead in March".
Yellen said delaying rate increases could leave the Fed's policymaking committee behind the curve and eventually lead it to hike rates quickly, which she said could cause a recession.
While stating that she did not want to weigh in on specific tax and spending proposal from the White House, her words on where she believes the USA should be going can be read as a warning to the Trump administration against the short-term gains that come with an extremely protectionist approach.
In a research note, Jim O'Sullivan, chief US economist at High Frequency Economics, said Yellen's remarks had "a fairly upbeat tone, consistent with more tightening before too long".