Federal Reserve Chairwoman Janet Yellen stressed during her testimony to the Congress on Wednesday that the pace of raising interest rates would be slower if economic data came disappointing.
The U.S. economy has witnessed some growth since the latest testimony and inflation is still predicted to rise to 2 percent over the medium term, Yellen said.
The current financial conditions are less supportive to economic growth, amidst the drop in shares and rise in the U.S. dollar, which is curbing exports, where GDP for this year is estimated to average 1.3 percent this year.
China and other foreign economies could weigh further on the U.S., and market expectations for inflation are sinking, Yellen said.
The slowdown in China does not appear to be strong, but uncertainty about the yuan’s exchange rate is adding more volatility to global financial markets.
She reiterated that raising interest rates is not “on a preset course.” Rather, the path of rates “will depend on what incoming data tell us about the economic outlook, and we will regularly reassess what level of the federal funds rate is consistent with achieving and maintaining maximum employment and 2% inflation.”
While the low oil prices have hurt investments in drilling and mining, they have provided support to consumer spending in the second half of 2015.
She defended the Fed’s decision of raising interest rates in December by mentioning that waiting too long to raise rates might have led to an “abrupt tightening” that “could increase the risk of pushing the economy into recession.”
“Other measures of labor market conditions have also shown solid improvement,” but “there is still room for further sustainable improvement.”
