Tightening financial conditions driven by falling stock prices, uncertainty over China and a global reassessment of credit risk could throw the US economy off track from an otherwise solid course, Federal Reserve Chair Janet Yellen says.
Speaking at her semi-annual appearance before the House Committee on Financial Services on Wednesday, Yellen said there are good reasons to believe the United States will stay on a path of moderate growth that will allow the Fed to pursue "gradual" adjustments to monetary policy.
Family incomes and wealth are rising, domestic spending "has continued to advance," and business investment outside the oil sector accelerated in the second half of the year, she said.
But Yellen said some of the weaknesses in the global economy have become self re-enforcing, with weak growth in major manufacturers like China and oversupply on commodity markets rattling the world's oil and mineral exporters.
She singled out uncertainty over recent changes in China's currency policy and the prospects for its economy as the culprit behind recent financial market volatility, with the potential to drag down other countries dependent on commodity and other exports to China.
But the Fed Chair held firm to an overall sense that US growth would continue, and that the world would eventually fall in step, particularly as other central banks maintain loose monetary policy.
The Fed in December raised interest rates for the first time since the 2007 to 2009 financial crisis and recession, ending a seven-year run near zero.
Policymakers at the time anticipated four more hikes this year, though investors have discounted that amid the risks cited by Yellen and continued low inflation in the US.
