Fed funds futures are currently pricing in a low probability that the Federal Reserve will squeeze monetary policy at any one of the next three FOMC meetings (Jul. 26, Sep. 20, Nov. 1). The Sep. meeting has recently been identified by some analysts as the most likely date for another rate hike. But the futures market estimates the probability at just 13% that the central bank will lift its target rate (currently at a 1.0%-to-1.25% range) on Sep. 20 (based on early trading on Jul. 12).

Meantime, Fed policymakers have turned cautious on additional rate hikes. Fed Governor Lael Brainard on Tuesday said that her voting for tighter policy depends on the incoming inflation data. “I will want to monitor inflation developments carefully, and to move cautiously on further increases in the federal funds rate, so as to help guide inflation back up around our symmetric target,” she said via Reuters.

Minneapolis Federal Reserve Bank President Neel Kashkari also voiced concern this week about muted inflation data. Citing low wage growth, he said that “it can’t be that bad to find workers because if you really were having to compete with other companies to find the scarce talent, we would see wages climbing, and we are not seeing wages climbing very quickly.”

Indeed, the annual pace of average hourly earnings for private-sector employees has weakened lately, rising 2.5% in June – close to the softest gain in more than a year.

Broader measures of inflation have also weakened lately. Core personal consumer expenditures (excluding food and energy), the Fed’s preferred inflation metric, has been edging down in recent months, falling to a 1.4% year-over-year pace in May – the lowest since Dec. 2015 and well below the Fed’s 2.0% inflation target.

The Treasury market, however, reflects more confidence that the Fed’s rate-hike regimen will roll on. The policy sensitive 2-year yield in particular remains in an uptrend. Although the 2-year rate slipped under 1.40% yesterday (Jul. 11) for the first time this month (black line in chart below), the technical profile for this maturity still implies that rates will rise in the near term.

A reassessment would be in order if the 2-year rate continues to break down. For now, however, this widely followed yield is anticipating that more rate hikes are near.

Today’s question: Will Fed Chair Janet Yellen’s scheduled testimony in Congress today (beginning at 10am eastern) alter the outlook for monetary policy? Consensus at the Fed is eroding due to weaker-than-expected inflation data. Meantime, the Fed is widely expected to begin paring its balance sheet in a bid to start the process of winding down the quantitative easing that’s dominated policy in recent years. Keep in mind, too, that Yellen’s tenure at the Fedends in Feb. and President Trump isn’t expected to reappoint her.

Roubini Global Economics notes that today’s comments from Yellen “could easily trigger a market response. Watch how Congress treats her to assess Yellen’s chances of remaining at the Fed.”

No less critical is how the 2-year yield reacts to Yellen’s comments.

Ultimately, it’s all about the data. Philadelphia Fed President Patrick Harker this week told The Wall Street Journal that it would be prudent to delay rate hikes if inflation doesn’t move toward the Fed’s 2% target. It’ll be useful to learn if Yellen echoes that view in today’s testimony.