Yellen: Too early to determine impact of global developments

  • By Martin Crutsinger Associated Press
  • Thursday, February 11, 2016 1:44pm
  • Business

WASHINGTON — Federal Reserve Chair Janet Yellen cautioned Thursday that global economic pressures pose risks to the U.S. economy but said it’s too soon to know whether those risks are severe enough to alter the Fed’s interest-rate policies.

Yellen said the Fed will determine at its next meeting in March how much economic weakness and falling markets around the world have hamstrung U.S. growth. And for a second day, Yellen was asked about the possibility that the Fed would use negative interest rates as a way to give the economy more support.

She repeated that the Fed had studied the prospect of deploying negative rates in 2010 but had decided then not to use them to try to boost the economy. But she said the Fed thought it should study the issue again now that other central banks, including in Europe and Japan, are using negative rates to try to step up lending and energize growth.

“In light of the experience of European countries and others that have gone to negative rates,” Yellen said, “we are taking a look at them again because we would want to be prepared in the event we needed” to nudge rates below zero to try to fuel borrowing and spending.

Yellen stressed that any Fed decision to employ negative rates in the United States was not imminent. She said that while the financial landscape has darkened since the Fed’s December rate increase, reversing course from gradually raising rates to cutting rates is “not what I consider the most likely scenario.”

The Fed chair acknowledged that the central bank has been surprised by how much energy prices have dropped and the U.S. dollar has risen in value since mid-2014.

“We have been surprised in part by those developments, and they have played a significant role in holding down inflation,” Yellen said.

The Fed has tied further rate increases to further evidence that it’s moving toward achieving its goal of having inflation rise at a rate of 2 percent annually. For nearly four years, the Fed has fallen well short of that target, in part because of sinking energy prices and a stronger dollar, which lowers the cost of imported goods.

Yellen’s testimony Thursday to the Senate Banking Committee followed an appearance Wednesday before the House Financial Services Committee. On both days, Yellen cautioned that global pressures could depress the economy’s growth and slow the pace of Fed rate hikes.

On Thursday, Sen. Charles Schumer, D-N.Y., challenged Yellen on the pace of future rate hikes. Schumer argued that pushing ahead too quickly with more rate hikes would be a mistake given that wage growth is just now showing signs of picking up. The senator said another concern was that rate increases could further boost the dollar’s value at a time when a strong dollar has been depressing the exports of American manufacturers.

“Further movement by the Fed to raise rates could snuff out the embers of wage growth,” Schumer told Yellen. “I am less worried about inflation and more worried about slow wage growth.”

Yellen said that in December, when the Fed raised its key rate by a quarter-point after it had remained at a record low near zero for seven years, there were signs that wages were improving.

“We expect that wages will move up at a somewhat faster pace” now that the unemployment rate has fallen significantly from levels reached during the recession.

On other issues, Yellen on Thursday:

— Said it was premature to say whether the risks of a recession have risen in light of recent economic weakness. “We have seen global economic and financial developments that may well affect the U.S. outlook,” she said. “I think it is premature at this point to decide exactly what the consequences … will be.”

— Was pressed by Sen. Elizabeth Warren, D-Massachusetts, to provide assurances that the Fed will reveal whether any of the nation’s largest banks provide inadequate living wills this year to banking regulators. The living wills are required by the 2010 Dodd-Frank Act. They’re intended to make sure the largest banks have adequate plans that will allow them to be shut by regulators, if necessary, without destabilizing the financial system.

Talk to us

More in Business

Gillian Montgomery weighs a bag of bird seed at Wild Birds Unlimited on Monday, Oct. 23, 2023 in Everett, Washington. (Olivia Vanni / The Herald)
Bird and cat lovers flock to this Everett bird supply store

Bring on the birds! Locally owned Wild Birds Unlimited store can help turn your backyard into a “seedy” restaurant.

Brielle Holmes, 3, points to a stuffed animal that she likes at Wishes toy store on Monday, Oct. 23, 2023 in Alderwood, Washington. (Olivia Vanni / The Herald)
Local toy store chain got its start as kiosk at Everett Mall

Wishes now operates eight stores, including three in Snohomish County. Its Alderwood mall store is a roomy 7,000 square feet.

Manager Rika Rafael, left, visual merchandiser April Votolato, center, and assistant manager and events coordinator Jaidhara Sleighter stand at the entrance of East West Books & Gifts’ new location Friday, Oct. 27, 2023, in downtown Edmonds, Washington. (Ryan Berry / The Herald)
‘We were meant to be here’: East West Books Gifts reopens in Edmonds

Located in Seattle before the pandemic, the new store offers books and other resources on meditation, spirituality and yoga.

Members and supporters of the Snohomish and Island County Labor Council gather on Oct. 10 at the Edward D. Hansen Conference Center in Everett. The the Affiliate Labor Champion Award was given to the International Association of Machinists 751. Wes Heard, center, accepted the award on behalf of IAM 751. Photo credit: Snohomish and Island County Labor Council.
Snohomish & Island County Labor Council honors labor leaders

The labor council’s annual Champions Dinner recognized two local labor leaders and a machinists union last month.

Two students walk along a path through campus Thursday, Aug. 4, 2022, at Everett Community College in Everett, Washington. The college’s youth-reengagement program has lost its funding, and around 150 students are now without the money they need to attend classes. (Ryan Berry / The Herald)
Fewer students enroll at state’s public colleges, study says

Enrollment has picked up since the pandemic, but the lag threatens the state’s quest for education equity.

Michelle Roth is a registered nurse in the Providence Emergency Department on Sunday, January 23, 2022. (Kevin Clark / The Herald)
Health career job fair to be held Thursday in Everett

More than 14 health care related employers will attend the Snohomish County/Workforce Snohomish event.

Logo for news use, for stories regarding Washington state government — Olympia, the Legislature and state agencies. No caption necessary. 20220331
State gets $1 million grant to boost small-business exports

Washington’s Department of Commerce will use the federal grant to help small companies increase their export business.

NO CAPTION. Logo to accompany news of education.
Grant to help fund health care program at Edmonds College

  1. The $220,000 grant from Career Connect Washington aims to improve the college’s patient care technician program.

Trader Joe’s customers walk in and out of the store on Monday, Nov. 20, 2023 in Everett, Washington. (Olivia Vanni / The Herald)
Trader Joe’s to move store to Everett Mall, application says

Trader Joe’s could move from its current address — with a tight squeeze of a parking lot — to the former Sears location at Everett Mall.

Starbucks workers and allies participate in a strike and picket organized by Starbucks Workers United during the company's Red Cup Day Thursday, Nov. 16, 2023, at a location near Pike Place Market in Seattle. (AP Photo/Lindsey Wasson)
Starbucks workers in Everett, Marysville join national strike

Hundreds of Starbucks union workers at 15 locations across Washington joined the one-day strike.

Summit Everett, a rock climbing gym, in Everett, Washington on Wednesday, Nov. 15, 2023. Summit will move into the former Grand Avenue Marketplace space, a retail location that has been vacant for five years. (Annie Barker / The Herald)
Everett climbing gym to close, move to new downtown site

Summit Everett, a Rucker Avenue anchor, will open a new facility next year one block west on Grand Avenue.

A whiteboard inside Richie del Puerto's auto tech classroom at Sno-Isle Technical Skills Center on Tuesday, Nov. 2, 2021 in Everett, Wa. (Olivia Vanni / The Herald)
Explore apprenticeship programs at free Everett job fair Nov. 16

The Sno-Tech Skills Center job fair features 30 apprenticeship programs from construction to health care.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.