“Foreign developments, in particular, pose some risks to US growth,” Yellen said in a testimony to the US Congress. “The situation in Greece remains difficult.”
Yellen explained that China continues to “grapple with the challenges” caused by high debt, weak property markets and volatile financial conditions. Shanghai stocks have plunged 30 percent since June 2015.
Greece is experiencing severe economic crisis, struggling to repay a $270-billion debt to international creditors, including the International Monetary Fund, the European Central Bank and Eurozone states.
Yellen argued that overall prospects are favorable for the US economy.
“The FOMC [US Federal Open Market Committee] expects US GDP growth to strengthen over the remainder of this year,” Yellen said.
However, economic conditions in foreign markets may improve faster than anticipated earlier and contribute to the growth of the US economy, Yellen added.
“Economic growth abroad could also pick up more quickly than observers generally anticipate, providing additional support for US economic activity.”
Interest Rates Hike ‘Appropriate’ Before End of 2015
An increase in the federal funds rate is likely to happen before the year's end, Yellen said.
“If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy,” Yellen said.
The US Federal Open Market Committee, she explained, will determine the timing of the initial increase in the federal funds rate on a meeting-by-meeting basis.
In March 2015, Yellen stated the target range for the interest rate might be raised after further labor market improvement and if the FOMC is reasonably confident inflation in the United States will decrease to two percent.
In the testimony, Yellen noted that the US economy has made further progress toward maximum employment, but inflation has continued to run below the FOMC target range.
Yellen said, however, US labor markets still face challenges.
“Too many people are not searching for a job but would likely do so if the labor market was stronger,” she said.
The Federal Reserve is the central bank of the United States that is responsible for managing national monetary policy, setting interest rates and regulating banks.
