Editor's Note: The article will be updated on a regular basis during Fed Chair Janet Yellen's testimony before Congress
(Kitco News) - While there are risks of the U.S. economy falling into a recession, Fed Chair Janet Yellen downplayed those potential hazards Thursday, reiterating that economic expansions “don’t die of old age.”
In her second day of testimony, Yellen said, before the Senate Committee on Banking, Housing and Urban Affairs, that it is too soon to determine what impact global conditions will have on the central bank’s monetary policy.
“It’s premature to make a judgment on the condition of the U.S. economy and the chance of a recession at this point. The committee will meet in March to discuss and make an assessment,” she said.
As for the market conditions that have led to lower inflation pressures, a stronger U.S. dollar and weaker oil prices, Yellen said that the central bank has been surprised by the extent of the price movement.
She added that the committee had anticipated a stronger U.S. dollar because of the strength of the domestic economy and the growing divergence in monetary policy compared to other global central banks.
“However, the extent of the move is not something we anticipated,” she said.
Although Yellen is optimistic on U.S. economic growth, the market appears not to have the same outlook. Gold prices continues to push higher, with April Comex gold futures hitting a new session high of $1,249 an ounce following her comments.
Fed Still Has Some Ammo Left
For the second day Yellen mentioned the idea of negative interest rates if conditions warrant it. She explained that the committee is “taking a look at them again” and that negative rates is a policy tool she will not take off the table.
Yellen said that she would not expect the impact of negative interest rates will be passed on to small depositors. She said that she hasn’t heard of any bank in the countries that do have negative rates passing on fees to smaller depositors.
In explaining negative rates, Yellen said that they still need to investigate the full implication of the idea. Similar to Wednesday’s testimony, she reiterated that the committee has not investigated the legal ramifications of negative interest rates.
After talking about the possibility of introducing interest rates, Yellen appears to be backing down a little bit saying she thinks it is unlikely the committee will reserve its current course.
“I have not thought that a downturn sufficient to cause the next move to be a cut was a likely possibility,” Yellen said.
Earlier in her testimony Yellen said that the central bank did not anticipate the current strength of the U.S. dollar; however, she later downplayed its impact, saying that although it is drag on the manufacturing sector, the U.S. economy has still managed to create more than 200,000 jobs in the last three months.
By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow Neils Christensen @neils_C
