The unemployment rate has now reached its equilibrium on most estimates and on current trends will fall further in the coming months.
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Noting the financial markets turmoil after China unexpectedly devalued its currency in mid-August, Yellen said they in part “reflected concerns that there was downside risk to Chinese economic performance”.
That implies a long wait, as China is engaged in a needed but risky multi-year effort to transform itself into a consumer-based economy.
After a two-day meeting with the whole world watching closely, the U.S. Federal Reserve on Thursday decided not to lift the benchmark interest rate above the near zero percent amid jitters in China and other emerging markets.
“We’re focused particularly on China and emerging markets”, Yellen said at her news conference.
US President Barack Obama will host Chinese President Xi Jinping at the White House next week, and the pair are expected to discuss the recent instability in financial markets driven by China’s economic challenges and investors anticipating a United States interest rate rise.
Mark Vitner, an economist at Wells Fargo, said he was a bit disappointed by the Fed’s delay because it suggested that the US economy still wasn’t at full health.
The world’s second-largest economy has been stubbornly resistant to stimulus following five interest rate cuts since November.
“The question is whether or not there might be a more abrupt slowdown than most analysts expect”, Dr Yellen said.
Credit growth is seen as one of the main gauges of whether the ECB’s unprecedented programme to buy 60 billion euros ($68 billion) of bonds and other assets a month is succeeding in reviving the economy and beating back the threat of deflation.
Financial markets had been zigzagging with anxiety this summer as investors tried to divine whether the Fed would start phasing out the period of extraordinarily low borrowing rates it launched at a time of crisis.
“If there are signs the economy is sliding out of the proper range, we have the ability to deal with the situation”, said Li at the World Economic Forum in the eastern city of Dalian.
Investors are now even more anxious about the global gloom. “Even after a quarter-point increase, interest rates would remain exceptionally low, providing ample support for economic growth”, the official said.
The Fed’s action Thursday was approved on a 9-1 vote, with Jeffrey Lacker casting the first dissenting vote this year.
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In deciding when to hike rates, the Fed repeated that it wanted to see “some further improvement in the labor market“, and be “reasonably confident” that inflation will increase. The Fed’s rate hike in September has been forewarned and factored in global markets. It accounted for 13.3 percent of global gross domestic product previous year , from less than 5 percent a decade earlier, according to World Bank data. In the short run at least, those rates could continue to stay low, held down by low inflation globally and by a flow of money into U.S Treasurys.
