Yellen indicates Fed could delay interest rate hikes

WASHINGTON – Federal Reserve Chair Janet Yellen indicated Wednesday the Federal Reserve could delay raising a key interest rate further while the U.S. economy faces increased risks from slower global growth and roiling financial markets.

But she said the U.S. appeared to be weathering the turmoil and that she did not think it would be necessary for the Fed to reverse course and reduce the benchmark short-term interest rate.

“We’ve 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 told members of the House Financial Services Committee.

Yellen also was quick to say that “monetary policy is not on a pre-set course” and that Fed officials were prepared to act if economic conditions worsened.

She even suggested the Fed would consider negative interest rates, an extraordinary step taken recently by the Bank of Japan and the European Central Bank to try to stimulate economic growth.

Yellen said the Fed hadn’t looked into the legality of such a move, which was briefly considered in 2010.

In the much-anticipated hearing, in which she made her first public comments in eight weeks, Yellen tried to calm financial markets while keeping all options on the table.

She appeared to accomplish the task: The Dow Jones industrial average and other major stock indexes rose after her comments, although they lost most of those gains by the time the markets closed.

“Figuratively speaking, Janet Yellen held Mr. Market’s hand and allowed markets to stabilize, at least for now,” said John Lonski, chief economist at Moody’s Capital Markets Research Group.

“It seems she succeeded in calming a very jittery market, but there’s no guarantee this lesser anxiety will last,” he said.

The indexes trimmed their gains as the hearing went on, but much of the questioning involved regulation and issues other than future rate hikes and the state of the U.S. economy.

Financial markets in the U.S. and abroad began tumbling at the start of the year, mirroring a steep drop in oil prices, and have been roiled ever since.

On top of that, new data show that U.S. economic growth slowed at the end of last year as the economies of China and other nations have faltered.

“Foreign economic developments, in particular, pose risks to U.S. economic growth,” Yellen said. But she tried to allay concerns by saying that “recent economic indicators do not suggest a sharp slowdown in Chinese growth.”

Still, she noted that uncertainty about the global economy triggered “increased volatility” in financial markets and “exacerbated concerns” about worldwide growth. The concerns helped push down the price of oil and other commodities, which “could trigger financial stresses in commodity-exporting economies.”

Low oil prices have caused inflation in the U.S. to run well below the Fed’s 2 percent annual target.

Yellen said she and other members of the policymaking Federal Open Market Committee are “closely monitoring global economic and financial developments” and assessing their implications for the U.S.