Newspaper article International New York Times

Yellen Shifts to Cautious Tone on U.S. Economy

Newspaper article International New York Times

Yellen Shifts to Cautious Tone on U.S. Economy

Article excerpt

The Fed chairwoman, in a biannual report to Congress, reiterated the central bank's gradual approach to interest-rate increases.

The Republicans said the Federal Reserve is secretive, ineffective and out of touch with the economic realities of ordinary Americans.

The Democrats showered its policies with encomiums like "herculean."

And those were just the opening statements Wednesday, as the Fed's chairwoman, Janet L. Yellen, began two days of biannual testimony on Capitol Hill.

Ms. Yellen functions as the economic weatherwoman for the United States, and on Wednesday she sounded more worried than at her last public appearance in December. Convulsions in financial markets, it seems, could restrain economic growth.

"Financial conditions in the United States have recently become less supportive of growth," she told the House Financial Services Committee. "These developments, if they prove persistent, could weigh on the outlook for economic activity."

But Ms. Yellen said that it was too soon to assess any damage, and she suggested that it was also too soon to say whether the Fed would raise interest rates in March.

"Let's remember that the labor market is continuing to perform well," she said. "We want to be careful not to jump to a conclusion about what is in store for the economy."

The Fed raised short-term interest rates in December for the first time since the financial crisis. It started small. Ending a seven-year period in which it held rates near zero, the Fed raised them to a range of 0.25 percent to 0.5 percent. Low rates aim to encourage borrowing and risk-taking, and the Fed said it planned to gradually curtail those incentives as the economy gained strength.

The Fed indicated in December that it planned to raise rates four times during 2016, beginning in March, but some analysts now expect the Fed will not move before June.

Like predicting the weather, gauging the health of the economy has proved challenging. Equity markets have tumbled on concerns about global growth. Interest rates have increased for riskier borrowers even as investors accept negative rates on a growing share of global debt, essentially paying to move their money into safe havens. …

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