The 12th Chairperson of the Federal Reserve Banking System, Janet Yellen, spoke to Congress a few weeks ago on 12-Wednesday-2017. Her testimony was to cover such topics as the course of monetary policy, plans for the overnight Fed Funds rate, the size of the Feds' balance sheet and the stability of the financial system. In the recent past, the Fed has signaled that it wants to raise short term interest rates at a measured pace as they withdrawal from "extraordinary measures" in monetary policy put in place in response to the financial crisis. Just as importantly, or maybe even more so, the Fed has laid out a plan for shrinking its balance sheet. So when the Chairwoman said the Fed would continue to modify its policy as necessary in response to economic performance, inflation, etc. it caught market participants a bit flat footed. As a result, the equity market rallied strongly in response to her dovish testimony.Strategists, financial journalists, and pundits all glommed on to the same idea for this rally. The Fed just signaled that the reduction in easy monetary policy may get pushed out a bit. This got us to thinking.
