Persistent economic weakness could slow rate hikes: Yellen

She insisted that the Fed will only continue to push up rates if the economy can handle it and that the central bank will not move towards more normal monetary policy without an economic justification.

Yellen said it was unlikely the Fed would cut rates any time soon from its current 0.25 percent.

In her first public comments in two months, Yellen offered no major surprises.

At a meeting before the House Financial Services Committee in Washington on Wednesday, Yellen practically admitted that she didn’t know which direction the Fed would be taking and despite her forecast several months ago that there would be 4 small rate increases in 2016, she seems to be backtracking now.

“I’m pleased with the progress we have made, but there’s further to go and we’re committed to making sure we stay on that course of further improvement in the labor market”, she said.

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.

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

In December, Fed officials nudged up the central bank’s benchmark short-term interest rate for the first time in almost a decade.

USA Today writer Paul Davidson reported that negative interest rates would “force banks to pay to keep reserves at the Fed, instead of paying the banks interest, as the Fed now does”.

Federal Reserve Chairwoman Janet Yellen said her agency’s policies are not to blame for the steady market decline in 2016.

The 10-year Treasury note yield dropped to 1.53 percent, its lowest since September 2012, while the 30-year bond yield hit 2.38 percent, its lowest in a year.

– Said Fed officials considered in 2010 the possibility of using negative rates to bolster the economy but eventually rejected the approach.

She nodded to concerns of weakness overseas and the downward pressure that falling oil prices were putting on United States inflation, which remains below the Fed’s 2 per cent target. In currency markets, the dollar took a dive as investors adjusted their expectations for fewer interest rate increases in the U.S. It fell to 112.26 yen from 113.35 yen.

“When Wall Street threatens Main Street, the reality is that even though the Fed doesn’t want to admit that it’s the central bank to the rest of the world too, it is”, said Diane Swonk, economist and founder of Chicago-based Diane Swonk LLC.

Yellen didn’t mince words about China: its economy is slowing down and uncertainty is rising about how much China will devalue its currency, the yuan.