In her semiannual report to Congress, Fed Chair Janet Yellen said the central bank would likely move more slowly to raise interest rates if the economy disappoints.
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Yellen, whose testimony on monetary policy starts at 10:00 a.m. ET, is expected to defend the central bank’s rate hike in December and likely insist further hikes this year remain on track, albeit at a slower pace. Investors were keenly awaiting Fed Chair Janet Yellen’s congressional testimony on Wednesday for further clues about the timing of the next interest rate hike. “We suspect that Yellen has yet to develop a firm view on the likelihood of a rate increase at the March meeting”.
European stocks were higher Wednesday ahead of testimony from the Federal Reserve chief that could either ease market turmoil or add to it. Asian markets mostly fell in a spillover sell-off from the previous day’s losses on Wall Street.
In her prepared remarks, Yellen cited job and wage growth fostering gains in both incomes and consumer spending.
The Fed in December raised interest rates for the first time since the 2007 to 2009 financial crisis and recession, ending a seven-year run near zero. On the one hand, she needs to reassure markets that the Fed has its finger on the pulse of global financial developments.
Fears of a global and USA economic slowdown, along with oil’s precipitous slide, have already dampened the market’s expectations for a hike in coming months. The Fed, she said, “anticipates that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate”, effectively leaving further rate increases as an option.
Yellen singled out China as a source of some of the major risk to United States growth, through a chain of spillover effects from its unclear policy on the yuan currency, or renminbi.
“Uncertainty is on the rise and the door still seems cracked to the Fed this year so I think markets are adjusting to that reality”, said Joe Manimbo, an analyst with Western Union Business Solutions, a unit of Western Union Co, in Washington. And oil prices resumed their fall. And a strong dollar has made it more hard for USA exporters to sell their goods overseas.
Kit Juckes, of Societe Generale, said that Ms Yellen “is going to have walk a line so fine we can barely see it to keep everyone happy”.
At the heart of the concern about the world economy is China, where policymakers are battling the slowest growth in 25 years, the depreciation in the yuan to the lowest value in five years and an equity sell-off that shook global markets, tightening financial conditions from the USA to Europe.
Britain’s FTSE 100 rose 0.7 percent to close at 5,672.30 and Germany’s DAX rose 1.6 percent to 9,017.29. Asked if the Fed might consider cutting rates if the economy faltered, Yellen said she did not expect such a move.
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Meanwhile, oil prices fell as much as 8 per cent in Tuesday’s trade amid forecasts of record crude inventories in the US.
