Janet Yellen, Federal Reserve chairwoman, testified before the U.S. House of Representatives on Tuesday, and said that she remained committed to removing monetary stimulus as long as the economy continues to improve.
The Fed began cutting bond purchases in December under the leadership of Yellen's predecessor, Ben Bernanke. After Yellen's comments on Tuesday, the central bank looks like it will continue at its current pace of cutting $10 billion in purchases at the Fed meeting in March.
Long-dated Treasury bonds sold off on the news, as continued reductions in the stimulus program will cause U.S. interest rates to rise.
Similarly, bonds were sold as the commitment to current policy eased investor anxiety. The market was genuinely concerned leading into Tuesday's testimony that new leadership at the central bank would adjust the current path of stimulus reductions.
This led investors to buy gold and Treasury bonds to hedge against an equity market selloff if Yellen were to shake up policy. The fact that Yellen chose to leave things the same was beneficial to market sentiment.
As anxiety subsided, U.S. equities were bid higher. With strong corporate results and monetary policy that accommodates the economic recovery, there is little reason not to buy U.S. equities, especially after the large selloff seen in recent weeks.
Investors are now turning their focus to how Yellen handles the labor market. The unemployment rate is approaching the central bank's target of 6.5%, but employment growth remains low and inflation is well below the Fed's 2% goal. If policy can better address employment and inflation in the future, U.S. equities may be on a path towards record highs.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.