Federal Reserve Chair Janet Yellen said Wednesday that the central bank is unlikely to consider backing off planned interest rate increases, despite recognizing the recent uptick in financial turmoil both at home and abroad.
She made the remarks on Wednesday before the House Financial Services Committee in response to questions asked by Rep. Carolyn Maloney (D-N.Y.).
“We have not yet seen a sharp drop-off in growth, either globally or in the United States. But we certainly recognize that global market developments bear close watching,” Yellen said. “As I mentioned, financial conditions have become less supportive to growth.”
She noted shortly after, however, that she did not expect the Fed “to be soon in a situation where it is necessary to cut rates.” Yellen cited the central bank’s belief that “the labor market is continuing to perform well, to improve” and its assessment of deflationary pressures caused by a fall in oil prices as “transitory.”
Yellen stated shortly after that the Fed would cut rates “if it turned out that would be necessary” for the central bank to fulfill the dual mandate given to it by congress–to maintain price stability while fighting unemployment. She regularly stresses in Congressional testimony that the Fed relies on fluid assessments when determining interest rates to that end.
In prefacing her questions, Maloney had noted that US stock prices have dropped by about 9 percent since the start of the new year–just after the Fed’s historic hike of the federal funds rate in December; its first increase since 2006.
Maloney also noted that the bearish market—caused by falling oil prices and financial instability in China–could see the US enter into a recession later this year, according to some analysts.
Yellen downplayed those anxieties, but stressed that financial developments “may have implications for the outlook, which we are in the process of assessing.”
In her opening statement, Yellen had said the Fed “anticipates that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.” Last autumn, before the December hike, she predicted that an initial increase in interest rates would come before the end of the year “followed by a gradual pace of tightening thereafter.”
The Fed body that sets the federal funds rate—the Federal Open Market Committee—is set to meet next on March 15.
