Federal Reserve Chair Janet Yellen  told Congress Wednesday that global 
economic troubles and the recent selloff in stocks could rattle the U.S.
 economy, raising the prospect of a delay in interest rate hikes.
In her testimony before the House Financial Services Committee , 
Yellen was not explicit on whether the Fed will bump up its benchmark 
interest rate again in March after lifting it in December for the first 
time in nine years.
But her remarks suggest the overseas weakness 
and market distress could threaten the Fed's plans to raise the rate 
gradually this year, including an increase at its March 15-16 meeting.
Yellen
 said financial conditions have become “less supportive of growth,” 
citing higher Interest rates for riskier borrowers and the strengthening
 dollar, which has hurt exports, in addition to the fall in stocks.
"These developments, if they prove persistent, could weigh on the 
outlook for economic activity and the labor market, although declines in
 longer-term interest rates and oil prices could provide some offset," 
Yellen said in her semiannual monetary policy report to Congress.
She
 added: "Foreign economic developments, in particular, pose risks to US 
economic growth." She singled out the economic slowdown in China.
In
 response to lawmakers' questions, Yellen said the Fed has not seen a 
slackening in the global economy that's dramatic enough to warrant the 
sharp market selloff. Still, she said, "We are watching very carefully 
what's happening in global financial markets."  The market troubles 
themselves could dent business confidence and growth.
Yellen also 
pointed to market-based inflation measures -- such as yields on certain 
Treasury notes -- that have fallen to "historically low levels." The Fed
 is hesitant to raise interest rates further without clear signs that 
feeble inflation is picking up. Yellen noted inflation has been pushed 
down largely by low oil prices and the robust dollar, which makes 
imports cheaper for U.S. consumers. She said those effects eventually 
should ease.
At the same time, Yellen said solid job growth and 
faster wage gains should continue to support the economy. The economy, 
she noted, added 2.7 million jobs in 2015 and the unemployment rate fell
 nearly a percentage point the past year to 4.9%.
Yellen said she 
doesn't believe the recent slowdown in growth augurs a rate cut. "I do 
not expect (the Fed's policymaking committee) is going to be in a 
situation where it is necessary to cut rates," she said.
Still, 
Yellen's assessment indicates Fed policymakers are keenly aware of the 
potential impact recent global economic and market turbulence could have
 on the economy.
Although the Fed chief didn't provide a clear 
signal on the Fed's plans for March, "There is enough focus on downside 
risks now to make a tightening move again that soon seem quite 
unlikely," Jim O'Sullivan, chief U.S. economist of High Frequency 
Economics, wrote in a note to clients.
The Fed faces a quandary as
 it weighs whether to raise rates next month. Markets have sold off this
 year on overseas economic troubles, plunging oil prices and the 
prospect of future Fed hikes.
Stock analysts were looking to 
Yellen to calm markets by saying the Fed is concerned about the 
turbulence and signaling that a March rate hike is now a long shot. 
 Volatile stocks can sap consumer and business confidence, tamping down 
economic growth without the need for the Fed to pile on by boosting 
rates. When global weakness similarly rocked markets in September, the 
Fed held off on a rate increase.
In late January, Fed policymakers
 kept interest rates unchanged and said the central bank is “closely 
monitoring global economic and financial developments and is assessing 
their implications for the labor market and inflation, and for the 
balance of risks to the outlook.” By removing its previous assessment 
that risks to its outlook were balanced, the Fed raised concerns about 
the trouble spots without ruling out a March rate increase.
Yet 
futures markets are giving less than 20% odds of another rate hike this 
year, a stance that economists say is too complacent.
Although the
 U.S. economy weakened in the fourth quarter, job growth was unusually 
strong, with average gains of 279,000 a month. And although payroll 
advances slowed in January, average wages rose sharply as the 
unemployment rate fell to an eight-year low of 4.9%. That, and other 
labor market indicators, suggest wages may be poised to climb more 
rapidly as the pool of available workers shrinks. That could eventually 
nudge up inflation, which has been stifled by a strong dollar and low 
oil prices, intensifying the pressure on the Fed to raise rates.
Because
 of the conflicting signals sent by the economy and markets, economists 
have said Yellen is likely to voice concerns about the strains abroad 
while emphasizing the Fed is keeping its options open pending economic 
data and market developments in coming weeks.
Source: USATODAY 
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