Fed's Janet Yellen: 'Always some chance of a recession,' but 'expansions don't die of old age'
Reporting from Washington — Federal Reserve Chairwoman Janet L. Yellen told lawmakers Thursday that the central bank was studying the possibility of setting negative interest rates to boost the economy if needed, but she reiterated that the U.S. does not appear to be nearing a recession.
“There is always some chance of a recession in any year, but the evidence suggests that expansions don’t die of old age,” she told the Senate Banking Committee in her second day of testimony on Capitol Hill.
The economy has been expanding since mid-2009, and Yellen said it was premature to conclude that tumultuous financial markets and a global slowdown would derail the unusually long stretch of growth.
Still, she indicated that Fed policymakers could delay additional increases in the central bank’s benchmark interest rate, which was nudged up from near zero in December.
Yellen tried to keep all options on the table while waiting for more data about the recent market anxiety’s effects on the U.S. economy. She refused to be pinned down on whether Fed policymakers would enact another small increase to the so-called federal funds rate at their next meeting in March.
Fed policymakers were closely watching developments in financial markets and the global economy, Yellen said. She was cautiously optimistic about the U.S. economy, though she said recent strong increases in hourly earnings indicated only “tentative” evidence that sluggish wage growth was improving.
Senators pressed Yellen on the possibility the Fed would reduce the federal funds rate — whose target now is between 0.25% and 0.5% — to below zero, as some central banks in Europe and Asia have done. Such a move would encourage banks to lend excess reserves instead of holding on to them.
“I think people are beginning to observe that the Fed is probably out of ammunition [to boost the economy], unless you decide to go to negative rates,” said Sen. Bob Corker (R-Tenn.).
Yellen said the Fed is studying the legality and implications of such a step, which was briefly considered in 2010.
Although she said she wouldn’t take negative rates “off the table,” Yellen didn’t indicate the Fed was ready to reverse course and start reducing rates.