Yellen says pace of future rate hikes could be slowed

“In prepared testimony to be delivered to Congress on Wednesday, Yellen acknowledged that there are several risks to US economic growth – borrowing costs are rising, stock prices have declined a lot so far this year and the dollar continues to strengthen against its global counterparts”. Sentiment was further shored up after Yellen said the Fed could raise interest rates at a more gradual pace if the current market volatility hurts the us economy.

U.S. Federal Reserve chairwoman Janet Yellen on Wednesday signals that the Fed still keeps door open to further interest rate hikes, but flagging risks that could delay any further moves. The Fed has long awaited faster wage growth for evidence that the job market is as strong as the steady hiring gains and low unemployment rate (now 4.9 per cent) would suggest.

“Ms. Yellen seems to be maintaining her faith in the outlook of the USA economy and still anticipates to raise rates”.

“Unfortunately, we haven’t been able to divorce ourselves from the themes that were prevalent a year ago”, said Eric Wiegand, senior portfolio manager at the Private Client Reserve at U.S. Bank in NY.

Monex Europe’s head of market analysis Ranko Berich said with emotions running high due to the U.S. primary races, Yellen is wading into the political arena. But they now say the Fed may hike just twice or less.

But if anyone expected Yellen to back away from the Fed’s December rate hike, they were disappointed.

– Sounded her concern about China’s weaker currency and economic outlook, which are rattling financial markets.

While many Democrats expressed support for a go-slow approach by the Fed in raising rates, Republicans on the committee argued that the subpar economic recovery over the past 6½ years was evidence of the mismanagement of the economy by President Barack Obama.

Read Yellen’s full remarks here, and we’ll have complete coverage of Yellen’s Q&A when she takes the mic at 10:00 a.m. ET. In prepared testimony, she pointed to recent declines in stock markets, higher interest rates for risky borrowers and the growing strength of the dollar as potential threats to the nation’s recovery. The Nasdaq composite added 61 points, or 1.4 percent, to 4,329.

“We expect Chair Yellen’s tone to remain generally optimistic about the near- to medium-term outlook for the United States economy, tempered by a note of caution on financial market movements and risks from overseas”, Barclays economist Michael Gapen told clients in a report.

THE QUOTE: “Traders and investors want clarity on the macroeconomic environment and, to a degree, we hope this can come from key corporate feedback and the top-dog central bankers”, said Chris Weston, chief market strategist at IG in Melbourne, Australia.

Top consumer China is closed this week for the Lunar New Year holiday.

“Let’s remember that the labor market is continuing to perform well, to improve”, she said.

There is less certainty now than when the Fed raised its target rate for overnight lending on December 16 from a record low near zero to a range of 0.25 per cent to 0.5 per cent. Stocks have been battered.