Yellen warns: US economy is on risk from China developments

US Federal Reserve’s usually silent Chairperson Janet Yellen descried that present global turbulence creates heavy risks for the US economy.

Ms Yellen’s statement was in front of the US Congress and it indicates that the Fed is less likely to make the next interest rate hike. US macroeconomic data in recent months a shows worsening of growth and employment trends.

According to the Chairperson, risks to the US economy from China are substantial. She has pointed out many other reasons to support her view that the economic environment is not going good for the US.

Financial market conditions are less supportive and recent equity prices across the world are negative sentiments. Higher credit cost and dollar appreciation all make that exports are difficult to be realized at needed scale.

“These developments, if they prove persistent, could weigh on the outlook for economic activity and the labour market, although declines in longer-term interest rates and oil prices provide some offset,” the Financial Times quoted her.

The Fed is expected to make its next meeting between March 15-16, where it is expected that the central bank will pursue the present return to normalcy policy. Increasing the interest rate in steps is the target of the Fed to exit from the quantitative easing phase.

But the present warning is a sign of rethinking on the interest rate policy. Further data in the coming weeks may help the Fed to have a final decision on the direction of interest rate policy.


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