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

  • Asian stocks lower after Wall Street falters

    Economic CTV News
    HONG KONG - Asian stocks are drifting lower on Thursday after a lacklustre performance on Wall Street. KEEPING SCORE: Tokyo's benchmark Nikkei 225 index dipped 0.3 per cent to 19,167.86 and South Korea's Kospi slipped 0.3 per cent to 2,161.05. Source
  • B.C. envoy says the window is open slightly for softwood lumber deal with U.S.

    Economic CTV News
    VICTORIA -- British Columbia's softwood trade envoy says there's a slight opportunity to quickly negotiate a new lumber agreement between Canada and the United States, but if a deal can't be reached by the summer or fall it could mean a lengthy fight. Source
  • Lululemon shares drop after weak outlook

    Economic CBC News
    Shares of Lululemon Athletica Inc. fell sharply in after-hours trading Wednesday after the athletic-inspired sportswear company delivered a weak outlook for the current quarter. The Vancouver-based company says it earned $136.1 million US, or 99 cents per share, for the three months that ended Jan. Source
  • Cenovus Energy buying most of ConocoPhillips's Canadian assets for $17.7B

    Economic CTV News
    CALGARY -- Cenovus Energy (TSX:CVE) announced Wednesday it will spend $17.7 billion to acquire most of the Canadian assets of ConocoPhillips, making the Houston-based company the latest international player to reduce its exposure to the oilsands. Source
  • Cenovus Energy buying most of ConocoPhillips' Canadian assets for $17.7B

    Economic CBC News
    Cenovus Energy of Calgary says it will spend $17.7 billion to acquire most of the Canadian assets of ConocoPhillips, making the Houston-based company the latest international player to exit the oilsands. Cenovus CEO Brian Ferguson is calling it a "transformational acquisition. Source
  • Canadian coal production hit three-decade low last year as demand wanes

    Economic CTV News
    CALGARY -- The National Energy Board says Canadian coal production dropped to a three-decade low last year as demand waned. Production came in at 60.4 million tonnes, a 12 per cent decline since 2013, and well off the peak of about 79 million tonnes reached in 1997, the NEB said Wednesday. Source
  • Etihad Airways responds to laptop ban with free iPad and Wi-Fi for 1st class

    Economic CBC News
    One Middle Eastern airline targeted by new U.S. rules banning computers on certain flights has responded by offering first and business class passengers complimentary use of a tablet computer with internet access while on board. Abu Dhabi-based Etihad Airways made the announcement on Wednesday, noting that so-called Premium passengers will be welcome to use the service as of Monday. Source
  • Sask. premier invites Calgary energy companies to move to Saskatchewan

    Economic CBC News
    Saskatchewan Premier Brad Wall is taking a turf war with Alberta to its economic heart, inviting energy companies based in Calgary to move their headquarters to his province. In a letter to Whitecap Resources, Wall offers to subsidize relocation costs, trim taxes and royalties and help find space in unused government buildings if the oil and gas firm moves to Saskatchewan. Source
  • Etihad to lend U.S.-bound passengers iPads as ban workaround

    Economic CTV News
    DUBAI, United Arab Emirates -- One Mideast airline affected by the ban on most electronics in the cabins of U.S.-bound flights will lend iPads to its top-paying travellers. Etihad Airways said on Wednesday that it will offer the tablets to U.S. Source
  • Bombardier senior execs earned nearly 50 per cent more in 2016

    Economic CTV News
    MONTREAL - Bombardier's senior executives saw their compensation rise by nearly 50 per cent last year at a time when it laid off thousands of workers, sought government aid and saw the first CSeries passenger jet take flight. Source