Federal Reserve chair Janet Yellen began her semiannual congressional testimony in the U.S. overnight, where she addressed mounting whispers about whether the Fed could implement negative interest rates as a way to boost economic activity. She said the central bank has not completely researched whether that would be legal.
Asked if she foresaw the Fed cutting rates soon, having only hiked rates in December for the first time nine years, Yellen said she did not expect that to happen any time soon as she considered the risk of a U.S. recession to be low.
Kathy Lien, managing director of FX strategy at BK Asset Management, said in a Wednesday note that there were three key takeaways from Yellen’s testimony. First, the Fed hadn’t made up its mind about March, but chances are it won’t raise rates. Secondly, the central bank is also very worried about financial market volatility, a strong dollar, wider credit spreads, and low oil prices. But finally, it is optimistic about the labor market and the impact that wage gains will have on spending.
Morgan Stanley said in a note, though, that Yellen’s testimony wasn’t dovish enough to assuage growth and inflation concerns that are building in global markets.
“Until the Fed makes clear that ‘gradual’ could mean only one or two rate hikes in 2016 instead of three or four, or until the Fed changes the narrative away from rate hikes altogether, we think risk markets will struggle in the absence of positive catalysts,” Morgan Stanley analysts said.
Wall Street closed mixed as investors digested Yellen’s remarks. The Dow Jones industrial average closed down 99.64 points, or 0.62 percent, at 15,914.74. The S&P 500 closed 0.35 points down, or 0.02 percent, at 1,851.86, while the Nasdaq composite gained 14.83 points, or 0.35 percent, to 4,283.59.
Most Asia markets extend falls; HSI down 4% – CNBC}