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Fed Chair Janet Yellen said they are monitoring inflation closely, but also expressed optimism about the economic situation. What does it mean for the Fed? Here is the view by ABN AMRO:

Here is their view, courtesy of eFXnews:

ABN AMRO Research comments on Fed Yellen’s  testimony before the Congress.

“Although the Fed seemed to stick to its base case that diminishing slack would foster ‘a stronger pace of wage and price increases’, Ms. Yellen was a little more cautious about this prospect.  She noted that there was ‘uncertainty about when-and how much-inflation will respond to tightening resource utilization’.

The Fed’s concern about inflation suggests that there were downside risks  to its forward guidance that ‘gradual increases in the federal funds rate over time’ will be warranted. The FOMC is currently projecting four increases in its key policy rate between now and the end of 2018.  Her remarks signal the risk that the pace could be slower,” ABN AMRO adds.

Our own view is that there will be three increases in interest rates, with the risks skewed towards even less because of downside risks to the inflation outlook,” ABN AMRO adds.

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