Federal Remoteness Chair Janet Yellen said the U.S. economy faces a number of far-reaching threats that could hamper growth and compel the Fed to slow the step of future interest rate hikes.
She highlighted in her semiannual report to Congress the broadening fallout from concerns over China’s weaker currency and mercantile outlook, which is rattling financial markets around the world.
Yellen was entreated my more than one lawmaker whether or not the central bank is currently bearing in mind a negative interest rate policy, a tool of last resort that some medial bankers have used to stimulate their economy. Yellen was cagey in her come backs to those questions.
“I am not aware of anything that would prevent us from doing it, but I’m saying we press not fully investigated the legal issues,” she said at one point. “That inert needs to be done.”
Indeed, while the Fed expects to raise interest appraises gradually, they are not on any preset course, she said Wednesday. The Fed would inclined to move slower “if the economy were to disappoint.”
In her first public comments in two months, Yellen presented no major surprises. She reiterated the Fed’s confidence that the U.S. economy was on track for stiffer growth and a rebound in inflation. At the same time, she acknowledged the weaker money-making data reported since the start of the year and made it clear the Fed is closely audit greater risks from abroad.
Yellen did mention in her pre red ex nsions to the House Financial Services Committee that it was possible that the fresh economic weakness could prove temporary, setting the stage for faster monetary growth and a stronger increase in inflation than expected. Should that cross someones mind, the Fed will be ready to hike rates more quickly than currently foresaw.
“The actual th of the (Fed’s key interest rate) will depend on what entering data tell us about the economic outlook,” Yellen voted.
After the Fed began raising rates late last year, economists extremely expected the central bank to continue to boost its benchmark rate mark but steadily, most likely starting in March. But private economists have in the offing trimmed their expectation for four quarter-point hikes this year down to perchance only two, with the first hike not occurring until June at the earliest.
James Marple at TD Bank is centre of those who still thinks the Fed is in a mood to hike rates at some something soon. “Despite the move in market expectations to price out chew out hikes completely in 2016, we still view two rate hikes this year as a secular probabilit,” he said in a note Wednesday.
Yellen’s testimony listed her most extensive comments on the situation in China. The data so far do not suggest that the incredible’s second largest economy was undergoing a sharp slowdown, Yellen rumoured. But she added that recent declines in the country’s currency have augmented concerns about China’s future economic prospects.
“This uncertainty led to increased volatility in epidemic financial markets and, against the background of persistent weakness abroad, exacerbated duties about the outlook for global growth,” Yellen said.
U.S. advance, as measured by the gross domestic product, slowed sharply in the fourth shelter of 2015, dropping to a meager rate of 0.7 percent. Yellen charged the result to weakness in business stockpiling and export sales. But she noted that terseness is being fueled by other sectors including home building and auto on the blocks.
Yellen said that the sharp declines in U.S. stock prices, revolt interest rates for riskier borrowers and further strength in the dollar had rendered into financial conditions that are “less supportive of growth.”
“These circumstances, if they prove persistent, could weigh on the outlook for economic project and the labor market, although declines in longer-term interest rates and oil worths could provide some offset,” she said.
Yellen divulged that the U.S. labor market remains solid, creating 150,000 fields in January. That was enough to push the unemployment rate down to 4.9 per cent.
Scotiabank economist Derek Holt responded in a note that the job market should be the main data point the Fed yield a returns attention to in setting its rate policy. “History suggests it is the wages statistics the Fed should be ying attention to the most as the accelerate late cycle and the Fed mainly reacts to this too late and has to over-tighten later in damaging fashion,” he wrote in a note to customers Wednesday.
Inflation, however, has continued to fall below the Fed’s target of 2 per cent annual sacrifice increases. The shortfall has been steeper recently because of the renewed subside in oil prices and stronger dollar, which holds down U.S. inflation by moving foreign goods cheaper for American consumers.
But Yellen said the key bank still believes that energy price declines and mightier dollar would fade in coming months. Inflation should also open to move closer to 2 percent as a healthy labor market pushes up wages, she foretold. Worker y has started to show its first significant gains since the Countless Recession ended 6½ years ago.