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Yellen says Fed watching market developments

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The index is off 9.4 per cent this year.

Overseas, European equities rebounded Wednesday.

“I think it would be very disruptive to the economy”, Yellen said when asked about the potential ramifications of Congress taking away the Fed’s ability to raise and lower short-term interest rates.

In her testimony to the House Financial Services Committee, Yellen stressed the Fed would be prepared to respond to changing economic conditions. She stressed the importance of not jumping to “a premature conclusion” about the economy.

But against the backdrop of major global central banks “easing” monetary policy, some experts argue it will be hard for the Fed to also increase rates much.

But since then global market turmoil and fears over world growth, especially in China, have seen the outlook become gloomier.

The Dow Jones Industrial Average (DJIA – 15,914.74) gave up an early triple-digit lead and fell 99.6 points, or 0.6%, to breach 16,000.

Walt Disney shares dropped 3.8 percent to US$ 88.85, and were the biggest drag on the Dow.

Rep. Ed Royce, R-CA, said in a statement after the hearing, “After lengthy questioning by Rep. Royce, Chair Yellen concluded that negative interest rate policy is something that should be examined by the Federal Reserve”. “These developments, if they prove persistent, could weigh on the outlook for economic activity and the labor market, although declines in longer-term interest rates and oil prices could provide some offset”, she said.

Though none of us were terribly excited to hear that our interest rates would increase this past December, it meant that we were up and out of the financial crisis.

If those trends continue, they could hurt USA economic growth, Yellen said. In Asia, Japan’s Nikkei 225 sank 2.3 percent and is down about 11 percent in the past month.

Copper slid to a two-week low, pressured by a stronger U.S. dollar as Federal Reserve Chair Janet Yellen pointed to the prospect for further gradual adjustments to monetary policy.

The S&P 500 Index (SPX – 1,851.86) dropped 0.4 points, or 0.02%.

The FTSEurofirst remains down 14 percent since the start of 2016, with markets such as the German DAX and British FTSE 100 roughly 20 percent below record highs reached past year. The group has been urging the Fed to delay further rate hikes until the job market improves further, especially for minority groups.

“Figuratively speaking, Janet Yellen held Mr. Market’s hand and allowed markets to stabilize, at least for now”, said John Lonski, chief economist at Moody’s Capital Markets Research Group.

Yellen kept the door open for a rate increase in March, though she didn’t explicitly refer to any tightening timeline or the Fed’s next meeting.

Don’t be tempted into buying more highly geared riskier shares, it said, as it believes gold will encounter selling above US$ 1,200 an ounce.

Deutsche Bank also climbed 6.5 percent after the Financial Times reported it was considering buying back several billion euros of its debt in an attempt to shore up the tumbling value of its securities. The bank’s CEO sought to reassure employees on Tuesday, saying in an internal note that the company’s finances were “rock-solid”.

The Latest: Deutsche Bank leads stock advance in Europe

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