Yellen says Fed will not reverse course and cut interest rates

WASHINGTON — The Federal Reserve sounded pretty confident when it predicted in December that it would spend 2016 gradually raising interest rates.

Well, Janet Yellen said Thursday, “A lot has happened since then.”

Just two months after the Fed started raising rates for the first time since the financial crisis, Yellen, the Fed’s chair, spent several minutes Thursday assuring the Senate Banking Committee that the Fed was not planning to reverse course and cut rates.

She said the Fed still planned to raise rates gradually, but she did not try to convince investors that the Fed still might increase rates at its next meeting, in March.

The Fed will publish a new round of economic forecasts then, as it does four times a year, “that will update markets on our thinking on the out- look and the risks,” she assured senators.

Economic growth has once again disappointed the Fed’s expectations in the early months of 2016. Investors, nervous about the global economy, have sent prices tumbling in equity markets — the market was down sharply again Thursday — and pulled back from lending money to riskier borrowers. Domestic economic growth slowed in the fourth quarter, and much of the rest of the world has fared even worse, which has curtailed foreign demand for American exports.

Yet Yellen’s tone was far from bleak. Asked about the possibility of another recession, she responded that anything is possible but “expansions don’t die of old age.”

She also said she still expected lower oil prices to lift growth. The magnitude of the decline took the Fed by surprise, and the costs have been larger than expected, but Yellen said the average household still would reap a benefit of about $1,000.

And she said Fed policy was still headed in the same direction: The question is not whether to raise rates, but when.

Yellen has previously pointed to stronger wage growth as an important sign that the economy was improving, and on Thursday she said that she was not impressed by a pickup in the recent data.

“At best the evidence of a pickup is tentative,” she said.