Yellen says strong dollar makes Fed cautious

Yellen, Chair at the US Federal Reserve, in a testimony before Congress, said the American central bank was optimistic of an improved job market and that this was backed by positive economic data since October.

While Federal Reserve Chair Janet Yellen did not refer to the possibility of a rate hike during the upcoming Fed meeting, she said the current outlook and the flow of data since the central bank’s last meeting in October are “consistent” with the rate hike criteria spelled out by US policymakers, an article in Reuters said. She indicated that even after the first increase, rates will remain very small.

In addition to her Wednesday speech, Yellen is scheduled to testify on the economy before the Congressional Joint Economic Committee on Thursday.

Any further delays in a hike could result in a sharper rise in rates later, which could push the economy into a recession.

Silver fell to its lowest since August 2009 at $13.79 an ounce, while platinum was unchanged on the day at $830.81 an ounce, after touching a seven-year low of $819.75.

“I would not say that I see a significant effect at this point, although certainly in the aftermath of the financial crisis, we’ve seen rather cautious behavior on the part of households and firms”, she said. Doing so would, in turn, raise the risk of upsetting financial markets and pushing the economy into recession.

But she added that the impact of any single economic report was limited, and that an accumulation of evidence suggested that the economy had gained strength. Friday’s employment report is expected to show the USA economy added 200,000 jobs in November. JPMorgan Chief Economist Bruce Kasman said he believes the potential growth rate for the economy is 1.5 percent, and this can only be sustained with tight labor markets. Yellen stated that she hopes to slowly tighten the monetary policy after lifting rates.

The Fed has left its target for the federal funds rate, the interest that banks charge on overnight loans, near zero since December 2008. The dollar surged to fresh yearly highs on the back of the comments from Janet Yellen.

“I think the market’s a little bit more focused on the Fed moving on rates and the pace going forward”, analyst Robert Pavlik said.

The euro jumped by 2 1/2 cents, (http://www.marketwatch.com/story/dollar-moves-up-as-investors-ready-for-ecb-meeting-2015-12-03) briefly hitting its highest level in four weeks.