(From Reuters)

Federal Reserve Chair Janet Yellen returned to Congress with a brave face on Thursday amid a worsening meltdown in global markets and growing skepticism the U.S. central bank can carry out its long-planned pivot to “normal” monetary policy.

Yellen before Senate committee Thursday

Testifying for a second straight day before lawmakers, Yellen repeatedly stressed that the Fed is not on a “pre-set path” even though, for now, she still expects it to gradually raise interest rates this year, given the strong U.S. labor market and other bright spots in the economy.

With investors stampeding to safer assets globally, the head of the world’s most influential central bank acknowledged that a weakened global economy and a steep slide in stock markets was tightening financial conditions faster than the Fed wants.

As she did at a House of Representatives panel on Wednesday, Yellen on Thursday warned a Senate Banking Committee against jumping to conclusions about the extent of the overseas threat to the growing U.S. economy.

“We are watching developments very carefully,” Yellen told the panel of senators. “I would say there is always some chance of a recession in any year. But the evidence suggests that expansions don’t die of old age.”

But the Fed chief faced a different financial landscape than just a day earlier: Prices of safe-haven U.S. Treasuries soared, with the yield on the benchmark 10-year bond falling to its lowest level in more than three years, while stocks plunged in Asia, Europe and the United States.

Yellen nodded to financial markets concerns as well as the downward pressure that falling oil prices were putting on U.S. inflation, which remains below the Fed’s 2 percent target.

“These factors may well influence the balance of risks or the trajectory of the economy and thereby might affect the appropriate stance of policy,” she said. “But at this point it’s premature to make a judgment on that.”

Investors have grown deeply skeptical that the Fed, which raised interest rates in December for the first time in nearly a decade and issued economic projections suggesting another four hikes in 2016, will be able to continue tightening monetary policy in the face of global warning bells that have grown louder since the beginning of the year. Read more

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