Weekly Market Commentary 02/17/2017

Federal Reserve Chair Janet Yellen’s semi-annual monetary policy testimony on Capitol Hill took center stage in the financial markets this week, but a full calendar of economic data provided a strong supporting cast. Yellen’s testimony, while not generating many surprises, was mildly hawkish, raising the odds that a rate hike might occur sooner rather than later. Indeed, following the testimony, the federal funds futures market priced in a 30% chance of an increase at the next meeting in March, more than double the odds prevailing before the testimony. Those odds receded later in the week, however, and at under 20% on Friday still remains a long short. From our lens, the Fed will probably not pull the trigger until sometime in the second quarter, although we recognize that Yellen’s comments together with the strength of recent data make an earlier increase more than a nontrivial probability.