Federal Reserve Chair Janet Yellen sticks to her guns amid worsening market rout

WASHINGTON – Fed Chair Janet Yellen returned to Capitol Hill having a brave face on Thursday amid a worsening meltdown on global stock markets and growing skepticism the U.S. central bank can transport out its long-planned pivot to “normal” monetary policy.

Yellen, testifying prior to the Senate Banking Committee, stressed the intense spots within the U.S. economic recovery while acknowledging that the weakened global economy and steep slide in equity markets is tightening financial conditions faster compared to Fed wants.

While Yellen warned against jumping to conclusions about financial threats from abroad, she faced a different financial landscape on Thursday than only a day earlier, when she testified to a House of Representatives committee.

Prices of safe-haven U.S. Treasuries soared in early trading, using the yield on the benchmark 10-year bond falling to the minimum in additional than three years, while stocks plunged in Asia, Europe and also the United States.

“We’re watching developments very carefully,” Yellen told the panel of senators. “I’d say there is always some chance of a recession in almost any year. But the evidence suggests that expansions don’t die of senior years.”

She nodded to concerns of weakness overseas and also the downward pressure that falling oil prices were wearing U.S. inflation, which remains below the Fed’s 2 percent target.

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“These 4 elements may well influence the total amount of risks or even the trajectory of the economy and thereby might modify the appropriate stance of policy,” Yellen said. “But at this point it’s premature to create a judgment on that.”

Investors have become deeply skeptical the Fed, which raised interest rates for the first time in nearly a decade in December, will be able to continue tightening monetary policy in the face of global warning bells which have grown louder forever of the season.

Futures investors have fully discounted expectations of the rate hike this year, with fed funds contracts showing growing expectations that the central bank would instead have to cut rates when September.

In another sign that central banks’ world-wide efforts to enhance growth and lending are falling short, the dollar has tumbled against a basket of currencies such as the Japanese yen.

In her testimony, Yellen leaned heavily on the prospect of continued job creation in the United States, rising wages, and an expectation that household spending would keep your economy afloat. But she also acknowledged that global and U.S. market conditions could upend that forecast.

“When Wall Street threatens Main Street, the reality is that even though the Fed doesn’t want to admit that it’s the central bank to the world too, it’s,” said Diane Swonk, economist and founder of Diane Swonk LLC, in Chicago. “What goes on abroad matters.”

? Thomson Reuters 2016