Yellen’s cautious testimony to Congress lowers rate hike expectations for July

Federal Reserve Chair Janet Yellen appeared before the US Senate in Congress on Tuesday to give her testimony on monetary policy and the US economy.

Yellen offered a subtle change to her outlook from less than a week ago when she spoke after the Fed’s policy meeting.

Yellen said she will tread carefully as she gauges when to lift short-term interest rates again as the central bank assesses whether the economic recovery remains on track and the jobs market is still improving. By giving a more cautious stance, she pushed the prospect of additional interest rate increases further into the future.

In her statement, Ms Yellen told a Senate Committee that she saw “considerable uncertainty” about the US economic outlook, singling out weaker hiring numbers and soft investment as evidence of some of the risks that remain on the horizon.

In the short term the UK’s referendum on its membership of the EU could have “significant economic repercussions”, the Fed chair added, while the economy faces longer-term doubts over the likely pace of productivity growth.

Ms Yellen’s words will further damp expectations of a rate rise next month following the Fed’s December increase as policymakers weigh a mixed set of economic indicators. Slower jobs growth in May and overseas hazards such as a possible UK exit from the EU prompted the Fed last week to hold policy unchanged as it trimmed back its longer-term interest-rate forecasts.

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