Bonds sold off and their yields jumped as traders reacted to the Fed chair's vague statement that the central bank will likely need to raise rates at an upcoming meeting and that "waiting too long for accommodation would be unwise."
"She's less cautious, that's for sure," said John Briggs, head of strategy at RBS. He said her comments and tone reinforced the Fed's forecast for three rate hikes, even if she did not exactly speak to it.
"Normally, Yellen talks about downside risks," said Briggs. "She just talked about the upside risk."
Stephen Stanley, chief economist at Amherst Pierpont, noted Yellen dropped concerns about the economy in her comments.
"This turns on its head the default stance of Yellen and the doves for the last several years. ... What she said today is that the economy currently justifies further rate hikes unless something changes. I view that as a low bar to rate moves. And note that she uses the phrase 'at our upcoming meetings,' which very clearly puts a March rate move on the table," he wrote.
Yellen was testifying before the Senate Banking Committee on the economy and policy.
Traders had been ruling out the possibility of a Fed rate rise in March, and most Fed watchers expect the next hike to be in June. After the central bank's last meeting statement, the odds for a March hike dropped even more, as they did when the last employment report showed weak wage growth — meaning low inflationary pressure.