Finance Finance News US economy looking healthier: Yellen

US economy looking healthier: Yellen

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Federal Reserve Chair Janet Yellen says the US economy is pulling away from its winter freeze, but has warned of risks from the Ukraine crisis and a real-estate slowdown.

Yellen told a congressional panel on Wednesday that the economy is on track for “solid growth” in the second quarter after an uncommonly severe winter helped push the growth rate to near zero.

But with the housing recovery slowing and unemployment still elevated, the economy still needs “a high degree” of monetary support, including keeping the benchmark federal funds rate at its ultra-low level, she said.

Moreover, she pointed to risks to growth from the geopolitical tensions of the Ukraine crisis, as well as a possible intensification of the financial stress in emerging market economies.

In mostly sunny testimony to the Joint Economic Committee of Congress, Yellen held close to established Fed policy views, and had little net effect on markets.

After some modest swings the dollar was a bit higher at $1.3925 to the euro; the 10-year Treasury yield was slightly down at 2.58 per cent, and the S&P 500 gained 0.2 per cent.

Yellen said the growth stall in the first quarter stemmed from mostly transitory factors, “including the effects of the unusually cold and snowy winter weather”.

“With the harsh winter weather behind us, many recent indicators suggest that a rebound in spending and production is already under way,” she said.

Yellen said market conditions have improved “appreciably”, but that they “are still far from satisfactory”, despite the pickup in hiring last month and the fall in the unemployment rate to 6.3 per cent.

Repeating a concern she has voiced since becoming Fed chair in February, she pointed to the still-high levels of long-term unemployed.

Yellen said she expects economic activity to expand “somewhat faster” this year than last, helped by less fighting in Washington over government spending, improved household wealth, and firmer global economic growth.

That, she expects, will begin reducing the numbers of underemployed and long-term unemployed.

But she made clear that the Fed’s monetary policy – its ultra-low interest rate stance and its slow drawdown of its bond-buying stimulus – are still appropriate and that policy makers do not foresee raising interest rates until mid- or late 2015.

She pointed out that even as the taper of the quantitative easing program goes on – falling from $US85 billion ($A92 billion) in December to $US45 billion starting this month – the Fed continues to buy bonds from the market.