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US stocks rally as investors see dovish tint to Yellen comments

US stocks rallied on Wednesday after Federal Reserve chair Janet Yellen said low inflation is still a cause of uncertainty, which some took to mean monetary policy tightening will remain gradual.

The S&P 500 rose 0.7 per cent to 2,442.07, while the Dow Jones Industrial Average advanced 0.6 per cent to 21,539.74. Meanwhile, the Nasdaq Composite clawed 0.9 per cent higher to 6,247.37.

Ms Yellen’s prepared remarks to Congress struck a dovish note when she said: “Considerable uncertainty always attends the economic outlook. There is, for example, uncertainty about when — and how much — inflation will respond to tightening resource utilization.”

Indeed, her remarks sent US Treasuries rallying. The yield on the US 10-year, which moves inversely to price, fell 0.039 percentage point to 2.321 per cent.

However, TD Securities strategists argued that markets had interpreted her remarks in an overly dovish fashion. “Chair Yellen’s prepared remarks ahead of her semi-annual testimony were less dovish in our view than interpreted by the market, as she maintained an upbeat economic outlook and reinforced that the dotplot (i.e., gradual rate hikes) still holds,” they said.

They also said they expect the bullish steepening price action in Treasuries to fade.

Ms Yellen will also answer questions on the health of the US economy and monetary policy after she delivers her prepared remarks.