The testimony isn’t as dovish as the initial headlines suggest. Yellen said rates are close to neutral… If so then the central bank could proceed to unwind its balance sheet at a faster rate.
Yellen explicitly said today that balance sheet run-off could begin this year… She also blamed recent dip in inflation to ‘a few unusual price declines in certain items’.
Clearly, the Fed intends to go on with balance sheet run off = reverse QE for markets. Dovish on talk on rates is weighing over the USD, but the rally in equities may not be sustained on reverse QE fears.