Janet Yellen: Market turmoil and dollar could hurt economy

World stock markets were also up Wednesday. Policy makers next gather to consider a rate change on March 15-16. The Nasdaq composite added 51 points, or 1.2 per cent, to 4,319. Exports out of China were down 1.4 percent in December, continuing a downward trend seen throughout the fall.

Ms Yellen said tightening financial conditions driven by market turmoil together with uncertainty over China were among the factors that could knock otherwise solid growth off course.

After testifying to the House Financial Services Committee on Wednesday, Yellen will address the Senate Banking Committee on Thursday. She stressed the importance of not jumping to “a premature conclusion” about the economy.

Ms Yellen will deliver her semi-annual monetary policy testimony to Congress at 3pm United Kingdom time.

The value of the dollar has also strengthened further, crimping US manufacturers, whose export sales fell last year for the first time since the recession year of 2009. So far this year, the Dow Jones industrial average has lost 8.1 percent.

In her appearance before the committee, Yellen made it clear that the Fed began on the path of rising interest rates because it believes the economy is growing, and so far it has seen nothing to suggest it was mistaken.

Amid oil prices continuing to plunge and weakening inflation, Dr Yellen said the downward price pressures were likely “transitory” and ultra-low inflation should recover towards 2 per cent as energy prices stabilise. But they now say the Fed may hike just twice or less. The Fed will likely slow its pace of rate increases “if the economy were to disappoint”, she said. This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness overseas, exacerbated concerns about the outlook for global growth. Wall Street was set to rise after a losing streak. On the day before, gold prices hedged up 0.06% or $0.70. The Stoxx Europe 600 index was up 2.3%.

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.

S&P 500 e-minis were up 14.5 points, or 0.78 percent, with 418,987 contracts traded.

Stocks are scrambling for modest gains early Wednesday after a rough start to the week.

Republicans argue that the Fed’s post-crisis policies missed the mark and that years of extremely low rates and several rounds of unprecedented stimulus, known as quantitative easing, did not help the economy but instead increased the likelihood of damaging inflation in the future. Bullish traders hope she’ll quash any remaining talk of a possible March rate hike.

“Peter Boockvar, chief market analyst at The Lindsey Group, described Yellen’s prepared comments as “noncommittal”, leaving the market with a “‘let’s play it by ear’, middle of the road message”.

BIG GAINER: Akamai Technologies surged 22.2 percent, the biggest gainer in the S&P 500 index.

European stock markets have built on gains at the open, with Germany’s Deutsche Bank clawing back a large chunk of its recent losses.