Federal Reserve Chair Janet Yellen says the US labour market still shows cyclical weakness and inflation continues to fall, making any interest rate hike unlikely before June.
In testimony in Congress, Yellen also said that frailties in China and Europe continue to pose a risk for the US economy, supporting the need for keeping the extraordinarily loose monetary policy currently in place.
But she said generally the US economy continues to grow fast enough to bring down unemployment, and the Fed expects that inflation will return to normal over the medium term.
That leaves the Fed still on course to begin normalising monetary policy later this year, after keeping its base interest rate at the zero level for more than six years.
In prepared testimony on monetary policy to the Senate Banking Committee, Yellen reiterated that policymakers will remain patient before tightening policy.
She said the Federal Open Market Committee, the Fed's policy board, still "considers it unlikely" that it will need to hike the federal funds rate "for at least the next couple of meetings".
Inflation is still falling, she said, and "room for sustainable improvements in labour market conditions still remains".
The FOMC calendar has upcoming meetings in mid-March and late-April, leaving the earliest time for a hike on the calendar Yellen sketched out the June 16-17 meeting.
With unemployment now having dropped to 5.7 percent on a strong pace of job creation since the middle of last year, the Fed's focus is on inflation.
"A high degree of policy accommodation remains appropriate," Yellen said.
Even stripping out the sharp fall in oil prices, inflation is continuing to sag and could decline further this quarter before turning up.
So, she said, the FOMC will not move on rates until it "is reasonably confident that inflation will move back over the medium term toward our two percent objective".
Yellen said the fall in oil prices, more than 50 percent since the middle of last year, may have caused disruptions in the oil industry, including sizable layoffs.
But on the whole, she said, the low oil price "is likely to be a significant overall plus" for the US economy.
On the other hand, she revealed worries about economic challenges abroad.
In China, she said, growth could slow more than Beijing's leaders currently expect.
"In the euro area, the recovery remains slow, and inflation has fallen to very low levels."
Despite the substantial loosening of monetary policy in Europe, she said, "downside risks to economic activity in the region remain."
Yellen, one year into her term as Fed chair, is tasked with normalising monetary policy after years of extraordinarily low interest rates to fight the drag from the 2008-2009 Great Recession.
AFP
source: newshub archive
