Yellen Signals Rate Path Hinges on Turmoil
Chair Janet Yellen said the Federal Reserve still expects to raise
interest rates gradually while making it clear that continued market
turmoil could throw the central bank off course from the multiple
increases that policy makers have forecast for 2016.
“Financial conditions in the United States have recently become less supportive of growth,” Yellen said in testimony
prepared for delivery Wednesday before the House Financial Services
Committee in Washington. “These developments, if they prove persistent,
could weigh on the outlook for economic activity and the labor market.”
Yellen,
69, kicked off two scheduled days of testimony on Capitol Hill by also
telling lawmakers that uncertainty over China’s economic prospects and
exchange-rate policy had “exacerbated concerns about the outlook for
global growth” and contributed to the latest drops in oil and other
commodities. A deeper commodities bust could trigger stresses around the
world that threaten demand for U.S. exports, she said.
Yellen
kept the door open for a rate increase in March, though she didn’t
explicitly refer to any tightening timeline or the Fed’s next meeting.
“She
is holding to her guns,” said Ward McCarthy, chief financial economist
at Jefferies LLC in New York. “The financial market turmoil is not going
to make them reverse course. It could have an effect on the pace at
which they normalize rates, but they are still committed to normalizing
rates.”
Eight weeks after raising interest rates for the first
time in nearly a decade, Fed officials are struggling to judge whether
financial market turmoil and a dimmer outlook abroad undermine their
U.S. forecast and the need for additional policy tightening. They next
gather to consider a rate change on March 15-16.