WASHINGTON -- Federal Reserve Chairman Janet Yellen cautioned Thursday that global economic pressures pose risks to the U.S. economy but said it's too soon to know whether those risks are severe enough to alter the Fed's interest-rate policies.
Yellen said the Fed will determine at its next meeting in March how much economic weakness and falling markets around the world have hamstrung U.S. growth.
The Fed chairman also acknowledged that the central bank has been surprised by how much energy prices have dropped and the U.S. dollar has risen in value.
In spite of the recent big moves in world stock markets, Yellen said she hasn't seen a steep drop-off in economic growth, either in the U.S. or globally. "Recent economic indicators do not suggest a sharp slowdown" in China, she added.
She forecast that the American economy would bounce back this quarter after slowing in the final three months of 2015.
"Yellen maintained a cautiously optimistic outlook, while acknowledging increasing downside risks," Kathy Bostjancic, an economist at Oxford Economics USA in New York, said in a research note.
Yellen's comments to the Senate Banking Committee came on the second day of her semiannual testimony to Congress. On Wednesday, she had cautioned that global pressures could depress the U.S. economy's growth and slow the pace of Fed rate increases.
She reiterated the Fed's intention to raise rates gradually, allowing the economy to continue to expand at a moderate pace and the labor market to improve further.
"The message that I think she is trying to send for policy is that tightening will be delayed, but that the longer-run outlook is not changed much," said Jonathan Wright, a professor at Johns Hopkins University in Baltimore and a former Fed economist.
In Yellen's appearance Thursday, Sen. Charles Schumer, D-N.Y., challenged her on the pace of future rate moves. Schumer argued that pushing ahead too quickly with further rate increases would be a mistake given that wage growth is just now showing signs of picking up. The senator said another concern was that rate increases could further strengthen the dollar's value at a time when a strong dollar has been depressing the exports of American manufacturers.
"I am concerned that further movement by the Fed to raise rates could snuff out the embers of wage growth," Schumer told Yellen. "I am less worried about inflation and more worried about slow wage growth."
Yellen said that in December, when the Fed raised its key policy rate by a quarter-point after it had remained at a record low near zero for seven years, there were signs that wage growth was improving.
"We expect that wages will move up at a somewhat faster pace" now that the unemployment rate has fallen significantly from levels reached during the recession, she said.
On Thursday, Yellen touched on many of the points she had made Wednesday in testifying to a House committee. She was again questioned about the possibility that the Fed would turn to negative interest rates to further support the economy.
Yellen repeated that the Fed had studied the prospect of deploying negative rates in 2010 but had decided then not to use them to try to strengthen the economy. But she said the Fed believed it should study the issue again now that other central banks, including in Europe and Japan, are using negative rates to try to step up lending and energize economic growth.
While not taking negative rates off the table, Yellen said the Fed was not close to making such a move. She said that while a "lot has happened" since the Fed raised its key rate in December, reversing course from raising rates to cutting them is "not what I consider the most likely scenario."
Information for this article was contributed by Martin Crutsinger of The Associated Press and by Rich Miller and Steve Matthews of Bloomberg News.
Business on 02/12/2016