Tightening financial conditions and uncertainty over China pose risks to the US recovery, but chances are slim the Federal Reserve will reverse the rate tightening cycle it began in December, Fed Chair Janet Yellen told USA lawmakers on Wednesday.
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“Yellen acknowledges that the recent market volatility has tightened the financial conditions in the U.S.”, Bernard Aw, a strategist at IG Asia Pte in Singapore, said by phone.
“I would say that remains a question that we still would need to investigate more thoroughly”, Yellen was cited as saying in her testimony before the House Financial Committee, referring to the legal issues.
She made no comment on whether the Fed still expected to continue raising interest rates this year, but analysts said her concerns lowered the possibility of an increase in its next policy meeting in March.
In December, the Fed raised base interest rates by a quarter point, to between 0.25 percent and 0.50 percent, once it had verified that the US economy was improving.
Gold futures held in the red during the entirety of Wednesday’s session and closed lower for the first session in six as traders focused on US Federal Reserve Chair Janet Yellen’s prepared remarks to Congress.
Bullion was also supported by inflows into safe-haven assets as investors fretted over the Fed’s rate hike path.
U.S. stocks rise today with NASDAQ and NYSE up for 1.26% and 0.42% respectively as of this writing.
But Yellen emphasized a steady-as-she-goes account of Fed policy, with good reason to believe the United States economy will continue to grow and allow the Fed to pursue its plan of gradual rate hikes. The Dow Jones industrial average has dropped 7 percent so far this year.
Yellen also noted that future interest rate increases were tied to the wider economic picture, and she refused to commit to a specific number of increases for this year.
During early trading on Thursday, European markets were hit hard, with London falling more than 2 percent, Frankfurt falling more than 3 percent and Paris plunging by as much as 4 percent.
Her reiteration that monetary policy was, “not on a pre-set course”, was a still a dovish sign, that the Fed might find it necessary to alter it trajectory at any time if incoming data warranted it. But that was before China, the world’s second-largest economy, signaled that it was slowing even more than expected and oil prices resumed their fall. In her testimony Ms Yellen singled out China as a central risk factor.
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YDSTIE: Yellen blamed the sharp decline in stock prices, less available credit, weak global growth and a further strengthening of the dollar, which hurts USA exports.
