Fed’s Yellen says there is a ‘chance’ of a recession

“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 Diane Swonk LLC, in Chicago. It is meant to encourage them to lend the money out rather than park it for safe- keeping.

Yellen said the “tightening financial conditions and uncertainty over China’s economic health are both risks to the U.S. recovery, however, it is unlikely that the Fed would reverse the interest rate tightening cycle it began in December”.

That was a striking admission.

Markets initially showed disappointment that Yellen did not spell out slower pace for rate rises, but were little-changed by the end of the day.

The Standard & Poor’s 500 lost 22.78 points, or 1.2 percent, to 1,829.08. Weeks of financial market turbulence have Fed officials reassessing whether their projections for steady growth and job gains and gradually rising inflation will hold up in the months ahead. This is down from the four hinted at by the US Fed itself at the December meeting.

YELLEN: We have seen global economic and financial developments that may well affect the USA outlook. If there was one, it was the talk of negative interest rates, according to Hogan, who hastened to add the exchanges displayed a “disconnect between honest Q-and-A and reality: It’s still in the Fed’s consciousness that the next move is another rate hike”. A prior 2010 study found that they didn’t work well, she said.

Ms Yellen’s remarks came on the second day of her closely-watched testimony before the US Congress, which has already sent markets into a fresh downward spiral after she acknowledged on Wednesday that tough global conditions could hamper US growth.

She said regulators are in the process of evaluating the “living wills” submitted previous year by big financial firms to describe how they would cope with a financial crisis without endangering the entire U.S. financial systems or requiring a government bailout.

Stock prices sank as Ms. Yellen spoke. She did concede, though, that negative rates, which central banks in Japan and Europe have recently imposed, are a tool the Fed has at least studied. Heller noted that in Yellen’s previous testimony to the committee she had expressed belief it was a good thing.

“I was surprised it was possible to move rates as negative as some countries have done”, she said in a Senate hearing.

“I do not expect that the FOMC is going to be soon in this situation where it’s necessary to cut rates”, she said.

Ms. Yellen was greeted with widespread skepticism, particularly among Republicans. Increasing US interest rates would make the dollar a more attractive currency for investors.

Shepherdson said her ambiguity left room for the FOMC to wait for more economic data on the United States and global economies over the next month to choose its path.