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Yellen warns of domestic, global risks to US economy

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Federal Reserve Chair Janet Yellen warned Wednesday that the US economy faced risks from tightening domestic financial conditions as well as global economic turmoil.

[WASHINGTON] Federal Reserve Chair Janet Yellen warned Wednesday that the US economy faced risks from tightening domestic financial conditions as well as global economic turmoil.

"Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar," she said in testimony to Congress.

"These developments, if they prove persistent, could weigh on the outlook for economic activity and the labor market," she said, according to the prepared text.

Yellen said the Fed still expects the US economy to grow at a moderate pace this year, noting that recent employment gains and a tentative pickup in wages "should support the growth of real incomes and therefore consumer spending." But she said that market turmoil abroad was also buffeting US economic momentum, and could drag down US growth.

The sharp fall in commodity prices - which she linked in part to "uncertainty" about China's economy and its policies - threatened to "trigger financial stresses" in commodity-exporting countries and companies.

"Should any of these downside risks materialize, foreign activity and demand for US exports could weaken and financial market conditions could tighten further."

While she gave no hint as to whether the Fed would consider raising interest rates again at its mid-March policy meeting, Yellen's warning appeared to reduce that likelihood.

After having increased its benchmark federal funds rate in December for the first time in seven years - to 0.25-0.50 percent - Yellen would only say that the Fed "expects that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the coming years."

AFP