US Fed chair reiterates cautious approach in rate hikes in future

U.S. Federal Reserve chairwoman Janet Yellen on Tuesday reiterated the central bank's intention to raise interest rates, taking a cautious approach in view of an uncertain U.S. economy.

"Proceeding cautiously in raising the federal funds rate will allow us to keep the monetary support to economic growth in place while we assess whether growth is returning to a moderate pace, whether the labor market will strengthen further, and whether inflation will continue to make progress toward our 2 percent objective," Yellen said.

In her testimony before the U.S. Senate Banking Committee, she pointed out "considerable uncertainty" about the U.S. economic outlook, which includes slow job gains, weak investment, slow productivity growth, and vulnerabilities in the global economy.

The average pace of job gains in U.S. slowed to only 80,000 per month in April and May, and business investment outside the energy sector was "surprisingly weak."

Yellen expressed her concern about the slow job gains and business investment, saying that these might illustrate one downside risk that U.S. domestic demand might falter.

Global vulnerabilities would also put the U.S. economic growth at risk, said Yellen, pointing to China's economic rebalancing, Britain's vote to exit the European Union, and sensitive global market sentiment.

As interest rates are still at low levels, the central bank might have limited room for further cuts if the economy worsens, said Yellen.

This is another factor supporting a cautious approach, said the Fed chair.

She said that the central bank expected interest rates to remain low for some time, in view of the weak global economy and sluggish productivity growth.

The central bank last week kept its federal fund rate unchanged, noting that it continues to closely monitor inflation indicators and global economic and financial developments.

The Fed raised its target range for the federal funds rate to 0.25 percent to 0.5 percent in December last year, but held off on any further rate hikes since then due to global economic uncertainty and volatile markets.