WASHINGTON (Reuters) – The tighter conditions due to falling stock prices, uncertainty about China and the revaluation of credit risks could derail US economy, which otherwise moves on a solid path, said Wednesday the president of the Federal Reserve, Janet Yellen.
So he said in testimony prepared for his appearance in Congress, which combined details on the management of the Fed with the admission of increased risks to the economy.
Yellen said there were good reasons to think that the US will remain on the path of moderate growth that will allow the central bank to apply “gradual” monetary policy adjustments.
The income and household wealth are increasing, domestic spending, “he continued advancing” and business investment outside the oil sector accelerated in the second half of the year, said Yellen.
He said he hopes that the labor market continues to improve and inflation eventually progress to meet the central bank’s target, despite the recent fall in expectations of price increases mentioned by some policymakers is particularly disturbing.
Perceptions EU could weigh
The president of the Fed acknowledged that some negative events in the global economy has worsened, as weak growth in major sectors manufacturers such as China and oversupply in commodity markets, which has collapsed oil prices and metals.
In this context, the widespread perception of a global slowdown and uncertainty about the severity of the problems in China, have tightened financial conditions for US businesses, he added.
“These events, if they are persistent, could weigh on the outlook for economic activity and the labor market” in the United States, Yellen said in remarks prepared for his semi-annual testimony before the Committee on Financial Services House of Representatives later on Wednesday.
Markets resist to pressure
A Fed report accompanying the speech Yellen said the US financial sector “was tough” to pressure oil and the weakening of corporate debt markets in the world, where the largest banks have limited exposure.
However, the report indicated that “if conditions worsen in these sectors could raise more tensions.”
Yellen pointed to the uncertainty caused by changes in China’s exchange rate policy and the outlook for the economy as a key factor behind the recent volatility in financial markets, arguing that this could particularly affect other dependent nations of raw materials and exports to China.
“If any of these downside risks materialize it, the activity abroad and the demand for US exports could weaken, and financial markets may have further complications,” he said.
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