USA economic growth in 2015 slowed down to an estimated 1.75 percent, restrained specifically by the dollar’s strength and its effect on exporters, Yellen said. Yet, she also highlighted growing risks facing the economy.
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YDSTIE: Yellen responded that the Fed’s main tool, manipulating interest rates to boost employment across the economy, could not be targeted at one group. It would likely move slower “if the economy were to disappoint”.
YELLEN: If you look at the difference in oil prices now relative to 2014, for the average American household, we’re looking at a savings of a thousand dollars a year.
“What Yellen said has been taken positively”, said Richard Sichel, chief investment officer of Philadelphia Trust Co in Philadelphia.
The question in question is whether or not the law that gives the Fed the power to pay banks interest on reserve balances deposited at the Fed – the Financial Services Regulatory Relief Act of 2006 – also empowers it to charge interest.
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Investors have all but ruled out further interest rate rises this year, after the Fed raised its fed funds rate for the first time in a decade in December. At the same, she acknowledged the weaker economic figures that have emerged this year have made the central bank’s experts nervous. When Scott pressed Yellen on that, she didn’t defend the Fed.
“The markets have gotten the message that the Fed is not on autopilot”, Davidson said. “It could have an effect on the pace at which they normalize rates, but they are still committed to normalizing rates”. The agency is expected to meet sometime in mid-March. That language was enough to placate those anxious that global strife might halt rate hikes, while satisfying those anxious about the rising cost of corporate credit that any tightening of policy would not burn a hole in company coffers.
Her testimony Wednesday included her most extensive comments on the situation in China.
Concerns are growing that the mounting market turmoil could put a brake on the global economy at a time it is already struggling with a litany of issues, includintChina’s slowdown, low inflation and plunging energy markets. The stock, which rose more than 10 percent after-hours on Wednesday, was up 2.2 percent at $147.30 premarket on Thursday. Yellen attributed the result to weakness in business stockpiling and export sales.
“Financial conditions in the United States have recently becomeless supportive of growth, with declines in broad measures ofequity prices, higher borrowing rates for riskier borrowers, and afurther appreciation of the dollar”, Yellen said. That was enough to push the unemployment rate down to 4.9 percent.
Low oil prices have caused inflation in the U.S.to run well below the Fed’s 2 percent annual target.
“Our tools are not ones that can be targeted at particular groups”, Yellen said, suggesting “job training, educational programs, programs that address barriers in the labor market, this is Congress’ job to address”.
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The central bank chair was due to speak again at 1500 GMT, appearing before the Senate Banking Committee.
