Global risks and a U.S. hiring slowdown warrant a cautious approach to raising interest rates as the Federal Reserve looks for confirmation that the country’s economic recovery remains on track, Fed Chair Janet Yellen said on Tuesday. In prepared testimony before the Senate Banking Committee, Yellen outlined how the central bank was thrown off course within weeks of raising rates last December by a slowdown in domestic growth and international events, including concerns over China’s economy and a further collapse in oil prices. Some of those clouds remain, Yellen said in comments that seemed to signal no pressing need for the Fed to raise rates. Before a further tightening of monetary policy, she said, the Fed needs to be sure U.S. economic growth and hiring have rebounded and there is no shock from the outcome of Britain’s June 23 vote on whether to leave the European Union. “The pace of improvement in the labor market appears to have slowed more recently, suggesting that our cautious approach … remains appropriate,” Yellen said. “Proceeding cautiously in raising the federal funds rate will allow us to keep the monetary support to economic growth in place while we assess whether growth is returning to a moderate pace, whether the labor market will strengthen further, and whether inflation will continue to make progress,” she said. With a weak global economy, low U.S. productivity and other factors holding down interest rates in the long run, Yellen said the Fed’s benchmark overnight interest rate is likely to remain low “for some time.” Current Fed policymakers’ forecasts foresee two rate increases this year and three each in 2017 and 2018, a slower pace from their projections in March. Job gains averaged 200,000 per month in the first quarter but averaged only about 80,000 in April and May, a possible “loss of momentum,” according to a monetary policy report submitted to Congress in conjunction with Yellen’s appearance. Yellen’s testimony will be followed by questions from lawmakers about monetary policy, the economy, regulatory matters and other issues. CRITICISM The Fed has faced criticism from Congress over its handling of matters like a leak of sensitive information several years ago, and more recently was questioned about cyber security after the theft of $ 81 million from an account held by the central bank of Bangladesh at the New York Federal Reserve Bank. The Fed under Yellen has begun nudging rates higher, but also has steadily downgraded its forecasts of the U.S. economy, delayed expected rate increases, and left investors perplexed about what’s influencing its decisions. The economy is near full employment and inflation has shown signs of picking up, putting the economy close to meeting the Fed’s twin goals. Yet Yellen and other policymakers remain tentative. Weak global demand and the impact of a strong dollar have hurt U.S. manufacturing, and the May jobs report raised the specter of slowing employment growth. Some officials have openly worried that the United States is being held back by a variety of global and domestic issues that will mean sub par growth and abnormally low interest rates for years to come. Alongside chronic challenges like low productivity and an aging population, the “Brexit” referendum on Thursday is considered a possible flashpoint for the global economy if Britain decides to cut its ties to the EU. A vote to exit the EU, “could have significant economic repercussions,” a prospect that in part prompted the Fed to hold off on a rate increase at its policy meeting last week, Yellen said. (Reporting by Howard Schneider; Editing by Paul Simao)
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