The most recent jobs report showed that wages grew at a decent rate of 2.5% annually. But that’s not nearly high enough to spark fears of runaway inflation and lead the Fed to aggressively raise rates.
Even if Yellen and the Fed hike rates three times this year, they are likely to do so by just a quarter point every time. That would push the Fed’s key short-term rate to a range of 1.25% to 1.5%.
That’s still extremely low. At those levels, stocks would still be more attractive than bonds. Corporate earnings should be able to keep rising at a healthy clip. And consumers would probably keep spending.
So investors would be wise to keep a close eye on Yellen and not just have a myopic focus on the president,
With that in mind, Yellen is set to testify in front of Congress on Tuesday and Wednesday. And what she says about the timing and magnitude of future rate hikes could wind up keeping the rally going full steam ahead — or stopping it dead in its tracks.
CNNMoney (New York) First published February 13, 2017: 12:30 PM ET