US Dollar slides vs Competitors On US Rate Hike Doubt

The found respote versus the euro on Wednesday after the Chairman of the Federal Reserve said that the Fed would pursue “gradual” adjustments to monetary policy, implying that it would continue raising interest rates.

It is only used in rare circumstances to pressure banks to lend more in commercial markets, to boost economic activity.

Analysts said nevertheless that her comments felt more dovish, less confident than when she announced the Fed’s first interest rate hike in more than nine years in December.

But some experts argue that global central banks are adding fuel to the fire, amplifying the gloomy outlook and spooking investors with unorthodox policies like negative interest rates. When Senator Dean Heller, a Nevada Republican, asked Yellen whether the Fed had caused stock prices to fall, she responded, “I don’t think it’s mainly our policy”.

A Fed report accompanying Yellen’s testimony said the US financial sector “has been resilient” to stress from the oil downturn and weakening corporate debt markets around the world, with “limited” exposure to those problems among large USA banks.

“Yellen’s testimony left open the door to a March hike, but laid out plenty of reasons for inaction too”, said Ian Shepherdson of Pantheon Macroeconomics. The Fed is studying whether regulation and the prevalence of high-frequency trading are worsening liquidity, according to Yellen.

Negative rates haven’t helped the economies where they are now in place, Toomey said, adding the end result would just be to put the U.S.in the midst of an ongoing global currency war.

Although she said that risks from China and financial conditions were “less supportive” of U.S growth, she did not appear to think this had yet happened and was unequivocal that current global financial turmoil had not yet impacted negatively on U.S economic growth.

“We shouldn’t be shocked that some asset prices have a little bit of a rough ride along the way”, Toomey said.

At the same time the so-called federal funds rate was increased by 0.25 of a percentage point, a majority of the Fed’s 17 policymakers projected the central bank would enact four similar small hikes this year. Financial conditions overall have tightened, driven by falling stock prices, uncertainty over China and a global reassessment of credit risk that could throw the USA economy off track.

The unemployment rate is now 4.9%, down from 10% in 2009, a level at or close to what the Fed considers full employment.

“I was surprised it was possible to move rates as negative as some countries have done”, she said in a Senate hearing. That’s partly because there’s concern the Federal Reserve might also move to negative rates.

Yellen has previously pointed to stronger wage growth as an important sign that the economy was improving, and on Thursday she said that she was not impressed by a pickup in the recent data. Yellen suggested that the issue of the Fed’s legal authority to impose negative borrowing rates as a means of stimulating growth still needed to be examined.