UBS: Janet Yellen's testimony was both dovish and hawkish

In a note to clients following the report, UBS' economics team said it thought the testimony had a little bit of something for everybody.

UBS said that Yellen's phrasing on how the Fed will change its language ahead of rate hikes is both hawkish and dovish.

UBS wrote:

[Yellen] also spoke at length about how the Fed will signal upcoming rate hikes: Before the FOMC begins considering an increase in the Federal funds rate, 'the Committee will change its forward guidance. However, a modification of the forward guidance should not be read as indicating that the Committee will necessarily increase the target rate in a couple of meetings.'

That phrasing is both dovish and hawkish.

Here's how UBS breaks that down:

• On the hawkish side, Yellen sounded eager to get rid of the "patient" language that had signalled at least a couple of FOMC meetings before a rate hike.
• On the dovish side, Yellen bought some time for the FOMC - indicating that dropping patient means no time commitment to immediate rate hikes.

And in sum, the firm thinks Yellen, "appears to believe that economic activity improving at a pace that seems consistent with dropping 'patient' and beginning rate hikes, but can't/won't/shouldn't commit to those rate hikes now."

Either way, the firm still expects the Fed will raise rates in June.