Yellen to Face Congress Over Fed Policy02/10 06:24
Federal Reserve Chair Janet Yellen will address Congress on Wednesday at a
time of deepening uncertainty about the Fed's interest rate policies.
WASHINGTON (AP) -- Federal Reserve Chair Janet Yellen will address Congress
on Wednesday at a time of deepening uncertainty about the Fed's interest rate
Since the Fed raised rates from record lows in December, the economic
landscape has become clouded by falling stock markets, global weakness and
sharply lower energy prices. Against that backdrop, lawmakers will likely want
to question Yellen about the probable pace of further rate hikes and the Fed's
role in supporting the U.S. economy.
After testifying to the House Financial Services Committee on Wednesday,
Yellen will address the Senate Banking Committee on Thursday.
Last week's jobs report for January further complicated the likelihood and
timetable of additional rate increases. It showed more pay for workers and
rising confidence among job seekers, even though the pace of hiring slowed.
So are more Fed rate hikes coming soon?
There is less certainty now than when the Fed raised its target rate for
overnight lending on Dec. 16 from a record low near zero to a range of 0.25
percent to 0.5 percent. Stocks have been battered. So far this year, the Dow
Jones industrial average has lost 8.1 percent. The Standard & Poor's 500 index
is down 9.4 percent. And the tech-heavy Nasdaq has plunged 14.8 percent.
It's unclear how much Yellen will say about the likely timetable for rate
increases. She and other Fed officials have stressed that their decisions
remain "data dependent" --- that is, hinge largely on the latest economic data.
Much of that data since December has been tepid. Manufacturing has slumped.
Corporate profits are down. Business stockpiles are up. Shrunken oil prices
have squeezed energy companies.
On the other hand, the job market --- the most vital part of the economy ---
remains solid. Worker pay is even starting to show its first significant gains
since the Great Recession ended 6 years ago. The Fed has long awaited faster
wage growth for evidence that the job market is as strong as the steady hiring
gains and low unemployment rate (now 4.9 percent) would suggest.
After the Fed began raising rates late last year, the widespread expectation
was that it would continue to boost its benchmark rate gradually but steadily,
most likely starting in March. But that was before global markets became deeply
unsettled. Concerns intensified that China, the world's second-largest economy,
was slowing even more than expected. And oil prices resumed their fall.
The value of the dollar has also strengthened further, crimping U.S.
manufacturers, whose export sales fell last year for the first time since the
recession year of 2009. A key manufacturing gauge has been in recession
territory for four months.
The overall economy grew at a meager 0.7 percent annual rate in the
October-December quarter, leading some analysts to begin wondering about the
possibility of another recession within a year or two.
Sung Won Sohn, an economics professor at the Martin Smith School of Business
at California State University, said he expected Yellen, in addressing
Congress, to leave the door open for a gradual rise in rates if market
conditions stabilize and the economy rebounds. Some analysts say they think her
testimony will echo comments the Fed's vice chair, Stanley Fischer, made in a
speech last week.
Fischer took note of the market turmoil, diminished oil prices and
strengthened dollar and said, "If these developments lead to a persistent
tightening of financial conditions, they could signal a slowing in the global
economy that could affect growth and inflation in the United States."
Fischer noted, though, that previous periods of market volatility had had no
permanent impact on the economy.
"We simply do not know" the timing and pace of future rate hikes, Fischer