Fed Chair Warns Of Decline In U.S Growth Due To Global Turmoil

Janet Yellen, the chair of the U.S Federal Reserve has said that although there is continued progress in the US economy, global economic concerns could impact its growth and cause a slow down hiring.

Yellen was speaking at a Congressional hearing with the House financial services committee when she opened up on her thoughts and views of the current domestic and global market situations.

According to her, the global economic scenario is now less conducive to U.S growth given recent market volatility, higher credit costs and the rising dollar.

She has particularly highlighted risks emerging from China’s financial markets.

In a statement, Janet Yellen Chair of US Federal Reserve said,

These developments, if they prove persistent, could weigh on the outlook for economic activity and the labour market, although declines in longer-term interest rates and oil prices provide some offset.

.

Yellen’s concerns indicate that the Fed’s policy of tightening the interest rate could be reviewed. She defended December’s decision to raise interest rates saying that hiring and wage gains should support the economy and a simulative monetary policy would encourage global growth. She added that the economy required the policy of gradual increase, as an abrupt raise might push it into a recession. According to Yellen, the gradual movement in interest rates would help promote economic activity at a reasonable pace and improve hiring.

But the current volatility and turbulence in the global markets seem to have altered Yellen’s earlier optimistic outlook in December. Yellen has said that the Fed will evaluate all options, saying the monetary policy is not a preset option. She did not discuss any specifics regarding decisions that could be made at the Fed’s next meeting which is scheduled to take place on the 15th and 16th of March 2016.

Yellen also noted that no sharp decline in growth has been observed in domestic or international markets but stated that there still needs to be a close watch on developments.

Even though there is no sharp decline in China’s growth, the fluctuations in its currency value have caused concerns for its economy and foreign exchange rate policy. This uncertainty has resulted in global markets reacting negatively, thereby bringing down global growth prospects. It has also impacted commodity prices, increasing financial risks in countries whose economies are led by commodity exports.

Although growth for the fourth quarter slowed down in the U.S, hiring has remained buoyant with the unemployment rate falling below 5 percent. The sustained rise in the dollar against most key currencies continues to cause concerns as it is likely to have an adverse impact on U.S exports.

Charlie Harrison

More articles by Charlie Harrison