WASHINGTON—Federal Reserve Chair Janet Yellen cautioned Wednesday that global weakness and falling financial markets could depress the U.S. economy’s growth and slow the pace of Fed interest rate hikes.
But Yellen made clear that the Fed won’t likely find it necessary to cut rates after having raised them from record lows in December. She did concede, though, that negative rates, which central banks in Japan and Europe have recently imposed, are a tool the Fed has at least studied.
In her semiannual report to Congress, Yellen offered no major surprises. And she reiterated the Fed’s confidence that the U.S. economy was on track for stronger growth and an increase in too-low inflation. At the same time, she noted the weaker economic figures that have emerged since 2016 began and made clear the Fed is nervous about the risks from abroad.
Yellen’s testimony Wednesday included her most extensive comments on the situation in China. The data so far do not suggest that the world’s second-largest economy is undergoing a sharp slowdown, Yellen said. But she added that declines in that country’s currency have intensified concerns about China’s economic prospects.
“This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth,” Yellen said.
U.S. growth, as measured by the gross domestic product, slowed sharply in the fourth quarter of 2015 to a meager annual rate of 0.7 percent. Yellen attributed the result to weakness in business stockpiling and export sales. But she noted that economy is being fueled by other sectors including home building and auto sales.
And she said the U.S. job market remains solid, even after slowing in January to a gain of roughly 150,000 jobs. That addition was still enough to lower the unemployment rate to 4.9 percent from 5 percent.
While many Democrats expressed support for a go-slow approach by the Fed in raising rates, Republicans on the committee argued that the subpar economic recovery over the past 6½ years was evidence of the mismanagement of the economy by President Barack Obama.
“This recovery is the most dismal, tepid recovery we have ever had in recorded history,” said Rep. Robert Pittenger (R-N.C.).
