Yellen wary of global weakness damaging U.S.
Fed’s optimism for growth dulled since raising key rate in December
Federal Reserve Chair Janet Yellen cautioned Wednesday that global weakness and falling financial markets could depress the U.S. economy’s growth and slow the pace of Fed interest rate hikes.
But Yellen made clear that the Fed won’t likely find it necessary to cut rates after having raised them from record lows in December. She did concede, though, that negative rates, which central banks in Japan and Europe have recently imposed, are a tool the Fed has at least studied.
In her semi-annual report to Congress, Yellen offered no major surprises. And she reiterated the Fed’s confidence that the U.S. economy was on track for stronger growth and an increase in too-low inflation. At the same time, she noted the weaker economic figures that have emerged since 2016 began and made clear the Fed is nervous about the risks from abroad.
Her concerns about the perils to U.S. growth contrasted with the Fed’s statement eight weeks ago, when it raised interest rates for the first time in nearly a decade and described economic risks as “balanced.”
Yellen’s testimony marked the first of two days of testimony she will give to Congress. Her appearance marked her first public comments since December, when the Fed raised rates for the first time in nearly a decade.
After the Fed began raising rates, economists widely expected it to continue to boost its benchmark rate gradually but steadily, most likely starting in March. But economists have scaled back their expectation for four modest hikes this year down to perhaps only two, with the first hike not occurring until June at the earliest
Yellen’s testimony Wednesday included her most extensive comments on the situation in China. The data so far do not suggest that the world’s second-largest economy is undergoing a sharp slowdown, Yellen said. But she added that declines in that country’s currency have intensified concerns about China’s economic prospects.
“This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth,” Yellen said.