Yellen cites risky conditions in global economy
February 10, 2016, 2:51 pm

Yellen’s remarks weren’t surprising given the volatility in global markets, but investors will be looking for further clues the Fed will not raise interest rates again in March [File photo: Xinhua]

In prepared statements to Congress, Yellen outlined risk factors such as dropping commodity prices and the correction in China’s economy as reasons to continue to monitor internal and external conditions ahead of another interest rate hike.

In December, the Fed’s Open Market Committee (FOMC) had announced a rate hike citing moderate growth trends in the US economy, such as low unemployment, increased job growth and home sales.

But on Wednesday, she told the House Committee on Financial Services that domestic conditions “have recently become less supportive of growth”.

She cited “declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar”.

“These developments, if they prove persistent, could weigh on the outlook for economic activity and the labor market, although declines in longer-term interest rates and oil prices provide some offset,” she added.

While she did not sound overly pessimistic about the Chinese economy, saying recent data did not point to a sharp slowdown in China’s GDP growth, she did warn of the effects of Beijing’s devaluation of the yuan (renminbi) as a source of continued uncertainty.

She said this was fueling volatility in international markets.

Yellen concluded by saying that the Fed’s monetary policy remains accommodative and would be on the look out for any global rifts that could affect the US economy.

“The FOMC anticipates that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate. In addition, the Committee expects that the federal funds rate is likely to remain, for some time, below the levels that are expected to prevail in the longer run,” she said.

US stocks apparently welcomed Yellen’s remarks and the fact that it could signal the Fed won’t be quick to raise interest rates in March.

All three major US indices, which had taken a beating throughout the second half of 2015, were up at press time.

The Dow Jones was up 0.4 per cent to 16,077; the S&P 500 was up 0.59 per cent, and the Nasdaq was up 0.89 per cent to 4,307.

Oil prices, however, continued to fall as US benchmark West Texas Intermediate slipped a further 1.4 per cent on Wednesday to $27.55 a barrel at press time.

The BRICS Post with inputs from Agencies