That’s all for tonight, after another lively day. A quick reminder of the key points.
Federal Reserve chair Janet Yellen has warned that the turmoil in the markets could hurt the US economy. She hinted the interest rates will only rise slowly, but tried to dampen speculation that the Fed could cut borrowing costs. Here’s our summary of her testimony to Congress.
It now seems pretty unlikely that the Fed will risk raising interest rates in March, for fear of throwing fuel on the fire.
Our economics editor, Larry Elliott, says:
As most analysts spotted, the key phrase in Janet Yellen’s testimony was when she said conditions in the US had become “less supportive of growth”. That suggested a Fed belief that the drop in share prices will slow the economy but not derail it completely.
Yellen’s wait-and-see approach means that a March increase in interest rates is now off the agenda, but the Fed will require more evidence before abandoning its strategy of cautious tightening. With the spectre of 2008 looming larger, that evidence may not be long in coming.
In her first major speech for two months, Yellen sought to tread a fine line, acknowledging the threat posed by the financial tremors while at the same time pointing out that the US had continued to recover from the deep recession of 2008-09.
The Fed chief said: “The economy is in many ways close to normal.” Specifically, Yellen pointed out that the unemployment rate had declined to below 5%, which many of her Fed colleagues consider to be full employment, and that inflation was likely to move up to 2%.
What was not normal, she said, were the federal funds rates, which had to be held for seven years at “exceptionally low levels”.
Yellen added that oil prices, steady job creation and faster wage growth should support growth of incomes and consumer spending. “Against this backdrop, the committee expects that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in coming years and that labour market indicators will continue to strengthen,” she said....(click here for more)
Another turbulent day in the financial markets is over!
And the Dow Jones index has finished in the red, losing 99 points or 0.6% to finish at 15,914, as investors digested Janet Yellen’s testimony.
As we covered earlier (summary here), the Fed chair warned that financial conditions have worsened, which could mean future interest rate hikes come more slowly. But she also said she didn’t see rates being cut again.
The broader S&P 500 index was unchanged, while the Nasdaq inched up a bit.
Photograph: Bloomberg TV
That means Wall Street failed to match the early rally in Europe, where shares rebounded from two year lows.
That followed a weak Asia-Pacific region; earlier, Australia’s market fell into bear territory, and Japan’s Nikkei lost another 2%.
Rocky day on Wall Street: Dow closes down about 100 points, S&P erases gains
Janet Yellen’s hearing at Congress was also attended by a group of protesters from the Fed Up campaign, who oppose December’s rate hike.
Wearing green t-shirts reading “Recovery, What Recovery?”, they sat behind the Fed chief during the session in a reminder that the public aren’t too happy about economic conditions right now.
Fed Up demonstrators show up at @FinancialCmte hearing to sit right behind Yellen.
The dollar has fallen against the yen, hitting a 15-month low.
That indicates traders are calculating that the Fed will be more cautious about interest rate rises, after Yellen said financial conditions had become less supportive for growth.
Cornerstone Macro analyst Roberto Perlibelieves
Janet Yellen managed to leave her monetary policy options open, even though few investors expect many rate hikes this year.
Perli says:
“The general message she intended to deliver is that additional rate hikes remain the base case, but markets have to stabilize before we see more.”
The US stock market is holding onto its earlier gains, after Janet Yellen completed her appearance at Congress.
The S&P 500 is up almost 1%, following the earlier rally in Europe.
Joshua Mahony, Market Analyst at IG, says Yellen gave a “mixed testimony”.
Her acknowledgement that a Chinese-centred slowdown is detrimentally impacting US growth expectations was offset by yet another reference to a plan for steady and gradual rate rises going forward.
Chairwoman of the Federal Reserve Janet Yellen prepares to testify before the House Financial Services Committee hearing. Photograph: Jim Lo Scalzo/EPA
Photograph: Gary Cameron/Reuters
Sean Duffy tells Yellen the Fed should release sealed transcripts of policy meetings that may shed light on an investigation into a 2012 leak of sensitive central-bank information. Photograph: Susan Walsh/AP
Capital Economics says that Janet Yellen is still more hawkish about interest rate policy than the markets.
They write:
Fed Chair Janet Yellen’s testimony to Congress today revealed that, while the FOMC might not be ready to raise interest rates for a second time in March, she still anticipates a “gradual” series of rate hikes over the next couple of years.
That view is clearly at odds with futures markets, which imply that any additional rate hikes are almost now off the table.
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