YELLEN: The Fed is in no hurry to raise rates

Federal Reserve chair Janet Yellen has reiterated that interest rates will rise slowly.

Yellen is speaking at the Economic Club of New York.

In her prepared remarks published before the speech Tuesday, Yellen said raising rates with caution is "especially warranted".

That's because the Fed would be in a better position if it had to suddenly raise rates, than if it had to provide stimulus by cutting rates in an economy where inflation stays stubbornly low.

Or, as Yellen says, the FOMC's ability to use conventional monetary policy is asymmetric.

In December, the Fed raised the benchmark Federal Funds rate to a range of 0.25% to 0.50%, after keeping that range near 0% for seven years. So if it were to cut rates, there isn't much room to go lower.

It's the first time we are hearing from Yellen since the Fed's meeting two weeks ago, when it cut its outlook for interest rate hikes this year from four to two.

Yellen follows at least four regional Fed governors in the last two weeks, who at times sounded more willing to raise rates than she did at her press conference.

And so, markets will be watching out for whether Yellen maintains her tone, or gives markets a more upbeat expectation for the Fed's plan to continue raising rates gradually.

So far, it seems their assessment is that Yellen is just as dovish as before. The Fed fund futures market fully priced in the next rate hike for January 2017.

The contention largely revolves around the "dot plot", which shows FOMC members' expectations for rates, and telegraphs the number of hikes they expect. Yellen has the burden of crafting a message that leads the market away from the precision of the dots to the Fed's intended message, according to BMO's fixed income strategy team in a morning note.

"Reflecting global economic and financial developments since December, however, the pace of rate increases is now expected to be somewhat slower," Yellen said. "For example, the median of FOMC participants' projections for the federal funds rate is now only 0.9 percent for the end of 2016 and 1.9 percent for the end of 2017, both 1/2 percentage point below the December medians."

Deutsche Bank's Alan Ruskin wrote in a note Tuesday that Yellen's biggest issue is that her assessment of the economy is 'flying blind', without the latest jobs report (due Friday), and national manufacturing data that's expected to show a long-awaited rebound.

Stocks surged into the green after headlines from Yellen's prepared remarks crossed. The dollar fell, while Treasuries gained.

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