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Wednesday, February 10, 2016

Yellen: Conditions Less Supportive of Growth

In a hearing before the House Financial Services Committee, Chair Yellen reiterated that the Fed intends to raise rates gradually, while also noting that financial conditions have deteriorated some.

“Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar. These developments, if they prove persistent, could weigh on the outlook for economic activity and the labor market.”

In her prepared remarks, the chair noted that foreign developments pose a risk to growth, as changes in the renminbi exchange rate have led to increased global volatility.

The chair also faced several questions from members regarding whether the Fed would consider implementing negative interest rates in the future, and whether or not they have the authority to do so. Yellen stated that the option was explored during 2010, but needs to be explored further. She does not know of any legal restrictions for implementing negative rates and also noted that it would not be a preferred tool.

Read Chair Yellen’s statement here.

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