WASHINGTON – Fed Chair Janet Yellen returned to Capitol Hill having a brave face on Thursday amid a worsening meltdown on global stock markets and growing skepticism the U.S. central bank can carry out its long-planned pivot to “normal” monetary policy.
Yellen, testifying before the Senate Banking Committee, stressed the bright spots in the U.S. economic recovery while acknowledging that the weakened global economy and steep slide in equity markets is tightening financial conditions faster than the Fed wants.
While Yellen warned against jumping to conclusions about financial threats from abroad, she faced another financial landscape on Thursday than just a day earlier, when she testified to some House of Representatives committee.
Prices of safe-haven U.S. Treasuries soared at the begining of trading, with the yield on the benchmark 10-year bond falling to its lowest level in additional than 3 years, while stocks plunged in Asia, Europe and also the Usa.
“We’re watching developments very carefully,” Yellen told the panel of senators. “I’d say there’s always some possibility of an economic downturn in any year. However the evidence shows that expansions don’t die of old age.”
She nodded to concerns of weakness overseas and also the downward pressure that falling oil prices were wearing U.S. inflation, which remains below the Fed’s 2 per cent target.
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“These factors may well influence the total amount of risks or the trajectory from the economy and thereby might affect the appropriate stance of policy,” Yellen said. “But at this point it’s premature to create a judgment with that.”
Investors have become deeply skeptical that the Fed, which raised interest rates for the first time in nearly a decade in December, will be able to continue tightening monetary policy in the face of global warning bells which have grown louder forever of the year.
Futures investors have fully discounted expectations of a rate hike this season, with fed funds contracts showing growing expectations that the central bank would instead need to cut rates as soon as September.
In another sign that central banks’ world-wide efforts to enhance growth and lending are falling short, the dollar has tumbled against a basket of currencies such as the Japanese yen.
In her testimony, Yellen leaned heavily around the prospect of continued job creation in the United States, rising wages, as well as an expectation that household spending would keep your economy afloat. But she also acknowledged that global and U.S. market conditions could upend that forecast.
“When Wall Street threatens Main Street, the reality is that even though the Fed doesn’t wish to admit that it’s the central bank to the world too, it’s,” said Diane Swonk, economist and founding father of Diane Swonk LLC, in Chicago. “What goes on abroad matters.”
? Thomson Reuters 2016
