Yellen: Fed not to blame for market turmoil

Federal Reserve Chairwoman Janet Yellen said her agency’s policies are not to blame for the steady market decline in 2016.

Testifying before Congress, Yellen pointed to other factors, like China’s economic slowdown, as the main reason for the stock selloff.

{mosads}The Fed did raise rates for the first time in years in December, and the stock market has shed over 10 percent of its value in 2016. But Yellen cautioned lawmakers not to confuse the two.

“The immediate market response, and for a number of weeks, to the Fed decision was quite tranquil,” she told members of the Senate Banking Committee. “It was a decision that I believe had been well communicated and expected.”

“I don’t think it’s mainly our policies,” she added.

Her testimony Thursday came amid another steep market selloff as the Dow Jones Industrial Average was down over 300 points in the morning trading.

Yellen found herself peppered with questions about what the Fed could do to boost the economy if things continued to worsen. With interest rates barely above zero currently, Yellen and others have noted that the Fed could lack the tools to fight off a recession.

A frequent topic of conversation is whether the Fed could actually push interest rates into negative territory, a move the bank explored in a recently released 2010 memo.

Yellen did not rule out the unprecedented move but cautioned there are ample questions about it, both in terms of whether the Fed’s systems could handle such a move or if the central bank has the legal authority to do it.

Some Republicans, eager to see the Fed raise rates after years of extreme accommodation, made their displeasure with the idea known.

“I find it very, very disturbing to even consider a move in that direction,” said Sen. Pat Toomey (R-Pa.).

While not ruling out even deeper accommodation, Yellen also made clear to Democrats, wary that the economy’s gains have not been felt in people’s paychecks, that the Fed is in no rush to raise rates further.

She insisted that the Fed will only continue to push up rates if the economy can handle it and that the central bank will not move towards more normal monetary policy without an economic justification.

“Normalization is not something we want to pursue and accomplish for its own sake,” she said.

While much of Thursday’s discussion centered around what the Fed could or couldn’t do if the economy worsened, Yellen maintained her tone of cautious optimism about the overall economy.

While the stock market has had a rough start to 2016 and wages still are not growing significantly, Yellen noted continued gains in the labor market and steady economic growth as a sign that things are, overall, heading in the right direction.