Pace of rate hikes slower 'if the economy were to disappoint': Yellen

WASHINGTON -- The widening fallout from global economic woes may compel the U.S. Federal Reserve to slow the pace of future rate hikes, but it doesn't see any immediate need to reverse course and lower rates, Chair Janet Yellen told lawmakers Wednesday.

See Full Article

In her semiannual report to Congress, Yellen flagged China's weaker currency and economic outlook, which is rattling financial markets around the world. She also expressed concerns that rising borrowing rates and a strong dollar could weigh on U.S. growth and hiring, a reflection of this year's turmoil in financial markets.

Yet she also noted that strong hiring at the end of last year and signs of better wage growth could offset those drags.

The Fed still expects to raise interest rates gradually, but it is not on any preset course, Yellen said. It would likely move slower "if the economy were to disappoint."

Asked if the Fed might consider a rate cut if the economy did falter, Yellen ruled out the need for such a move right now.

"If it turned out to be necessary, (Fed policymakers) would do what is necessary to achieve the goals Congress has set for us," Yellen said.

Yellen's testimony marked her first public comments since December, when the Fed raised rates for the first time in nearly a decade. She offered no major surprises and reiterated the Fed's confidence that the U.S. economy was on track for stronger growth and a rebound in inflation. At the same time, she acknowledged the weaker economic data reported since the start of the year and made it clear the Fed is nervous about the greater risks from abroad.

Her remarks stand in contrast to the Fed's statement eight weeks ago when it described economic risks as "balanced."

After the Fed began raising rates at its December meeting, economists widely expected the central bank to continue to boost its benchmark rate gradually but steadily, most likely starting in March. But private economists have trimmed their expectation for four quarter-point hikes this year down to perhaps only two, with the first hike not occurring until June at the earliest

Her testimony Wednesday included her most extensive comments on the situation in China. The data so far do not suggest that the world's second largest economy is undergoing a sharp slowdown, Yellen said. But she added that recent declines in the country's currency have intensified concerns about China's future economic prospects.

"This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth," Yellen said.

U.S. growth, as measured by the gross domestic product, slowed sharply in the fourth quarter of 2015, dropping to a meagre rate of 0.7 per cent. Yellen attributed the result to weakness in business stockpiling and export sales. But she noted that economy is being fueled by other sectors including home building and auto sales.

Yellen said that the sharp declines in U.S. stock prices, rising interest rates for riskier borrowers and further strength in the dollar had translated into financial conditions that are "less supportive of growth."

"These developments, if they prove persistent, could weigh on the outlook for economic activity and the labour market, although declines in longer-term interest rates and oil prices could provide some offset," she said.

Yellen said that the U.S. labour market remains solid, creating 150,000 jobs in January. That was enough to push the unemployment rate down to 4.9 per cent.

Inflation, however, has continued to fall below the Fed's target of 2 per cent annual price increases. The shortfall has been steeper recently because of the renewed drop in oil prices and stronger dollar, which holds down U.S. inflation by making foreign goods cheaper for American consumers.

Yellen said the central bank still believes that energy price declines and stronger dollar would fade in coming months. Inflation should also begin to move closer to 2 per cent as a healthy labour market pushes up wages, she said. Worker pay has started to show its first significant gains since the Great Recession ended 6 1/2 years ago.



Advertisements

Latest Economic News

  • Canada open to completing NAFTA talks in short order

    Economic CBC News
    Canadian negotiators are open to working on a timeline proposed by the U.S. to complete NAFTA renegotiations before the end of the year, CBC News has learned. A government source, speaking on background, tells CBC News that Canada is willing to work quickly, but will not agree to a bad deal for the sake of meeting a deadline. Source
  • U.S. wants NAFTA talks to wrap up before year's end, but is it possible?

    Economic CBC News
    Canadian negotiators are open to working on a timeline proposed by the U.S. to complete NAFTA renegotiations before the end of the year, CBC News has learned. A government source, speaking on background, tells CBC News that Canada is willing to work quickly, but will not agree to a bad deal for the sake of meeting a deadline. Source
  • B.C. premier and jobs minister sued by fired LNG advocate claiming $5M

    Economic CTV News
    VANCOUVER -- British Columbia's fired liquefied natural gas advocate is suing Premier John Horgan, the province's jobs minister and a New Democrat MP in a lawsuit claiming $5 million in damages. Gordon Wilson alleges in a statement of claim filed in B.C. Source
  • Millennials in Atlantic Canada most optimistic about owning homes

    Economic CTV News
    Do millennials think they can afford to buy a home? If they live in Atlantic Canada, the answer is a lot more likely to be yes. That’s according to a new online survey of 1,000 Canadians aged 25 to 30, conducted by Leger Marketing from real estate firm Royal LePage. Source
  • Can millennials afford to buy a home? It depends where they live

    Economic CTV News
    Do millennials think they can afford to buy a home? If they live in Atlantic Canada, the answer is a lot more likely to be yes. That’s according to a new online survey of 1,000 Canadians aged 25 to 30, conducted by Leger Marketing from real estate firm Royal LePage. Source
  • $500K hardship fund for former Sears Canada employees approved by judge

    Economic CBC News
    A judge has approved a hardship fund for former Sears Canada employees that will come from a pool of money set aside to pay bonuses for key employees. The $500,000 fund will help former employees facing difficulty who would have otherwise been eligible for severance payments when they lost their jobs at the retailer. Source
  • Elevated testosterone linked to 'reckless' financial trading, study finds

    Economic CBC News
    It's no secret financial traders have always been predominately male. So, when a group of researchers with the Ivey Business School at Western University in London, Ont., set out to at look at the role of testosterone on the markets, it wasn't a far-flung idea. Source
  • Brazil to ask for WTO panel to settle dispute over Bombardier subsidies

    Economic CTV News
    MONTREAL -- Brazil says it will ask the World Trade Organization to establish a dispute settlement panel after consultations with Canada failed to resolve its complaint about government subsidies to aircraft manufacturer Bombardier. The South American country said it will ask the WTO to examine more than 20 subsidy programs granted to the Montreal-based company for the development of its CSeries aircraft. Source
  • Bombardier employee in Swedish unit charged with bribery

    Economic CBC News
    A Russian employee in the Swedish branch of Canadian plane and train maker Bombardier was charged Friday with aggravated bribery and faces up to six years in jail and deportation if found guilty. Swedish prosecutor Thomas Forsberg alleges Evgeny Pavlov bribed a public servant in Azerbaijan to win a $340-million contract for a new signalling system. Source
  • Bombardier says Russian worker charged with bribery doesn't reflect its values

    Economic CTV News
    MONTREAL -- Bombardier says the filing of formal criminal charges in Sweden on Friday against a railway employee doesn't reflect its values. "We take these allegations very seriously as they assert conduct that does not reflect our values or the high standards we set for ourselves, our employees and our partners," the Montreal-based company (TSX:BBD.B) said in a statement. Source