Economic Tumult to Color Janet Yellen’s House Testimony

However, tightening financial conditions driven by falling stock prices, uncertainty over China and a global reassessment of credit risk could throw the US economy off track from an otherwise solid course, Yellen said in a prepared testimony to Congress.

“These developments, if they prove persistent, could weigh on the outlook for economic activity and the labor market”, Yellen said in her remarks at the start of a two-day testimony.

After the Fed began raising rates late past year, economists widely expected the central bank to continue to boost its benchmark rate gradually but steadily, most likely starting in March.

Federal Reserve Chair Janet Yellen will address Congress on Wednesday at a time of deepening uncertainty about the Fed’s interest rate policies.

“At the House Financial Services Committee today, Janet Yellen can expect a tough examination from lawmakers after the financial carnage that has ensued since the Fed hiked interest rates”.

Global risks have intensified and could slow the USA economy, but “I don’t expect the (Federal Open Market Committee) is going to be soon in the situation where it is necessary to cut rates”, Yellen said.

“Low commodity prices could trigger financial stresses in commodity-exporting economies, particularly in vulnerable emerging market economies, and for commodity-producing firms in many countries”, Yellen said.

It has been downhill for financial markets ever since the Federal Reserve moved in mid-December to raise interest rates off zero for the first time in almost a decade. The S&P financial sector was up almost 1 per cent.

The Nikkei (Nihon Kenzai Shinbun:.N225) added the 5.4 percent losses seen on Tuesday, closing down 2.3 percent on Wednesday as banking and commodities stocks continued to get hammered. She has sounded cautious on the outlook for the USA economy, however, but hasn’t backed away from expectations for additional rate increases at a gradual pace. Oil prices are close to the lowest level since 2003.

So far, Yellen’s comments appear to have injected a degree of risk tolerance back into the market.

Meanwhile, the markets largely shrugged off the results of the Treasury Department’s auction of $24 billion worth of three-year notes, which attracted below average demand.

ENERGY: Brent crude, a benchmark for global oils, was up 54 cents at $30.86 a barrel in London. But the housing sector strengthened, unemployment fell to 4.9 percent last month and, in a relief for the Fed, wages jumped in January by the most in a year. The shortfall has been steeper recently because of the renewed drop in oil prices and stronger dollar, which holds down US inflation by making foreign goods cheaper for American consumers.

“Recent monetary easing overseas likely has had a tempering effect on longer-term USA interest rates that partially offsets the effect of our own policy normalization”, the Fed said.