WASHINGTON, June 21 (Reuters) - The following are highlights of Federal Reserve Chair Janet Yellen’s question-and-answer session on Tuesday before the U.S. Senate Banking Committee, where she delivered the central bank’s semi-annual monetary policy report to Congress.
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“I am not attempting to take a stand. They are going to go to the polls, they’ve had an active debate on the issues and I am not providing advice in that sense.... It’s for them to decide. I am simply saying the decision could have economic consequences that would be relevant to the U.S. economic outlook... There is uncertainty but this is a unique event that has no close parallel. It’s hard to know what the consequences would be — of course there is always uncertainty both domestically and globally, we operate in an uncertain environment...We will closely monitor what the economic consequences would be and are prepared to act in light of that assessment.”
“I think it’s quite low. I think the U.S. economy is doing well and although I’ve indicated that we’re watching this recent slowdown in the job market carefully, my expectation is that the U.S. economy will continue to grow. We’ve seen a strong pickup in consumer spending and growth in the economy. If the weakness in the labor market for the last couple of months was a reaction to earlier slowdown in growth that looks to be reversing, I remain quite optimistic. And the kinds of conditions that have been associated in the past with U.S. recessions...we don’t have any such conditions in play now... I think the odds of recession are low and certainly not what I expect.”
“I think the financial market reaction to the uncertainties that would be unleashed by that decision could result in a kind of risk-off sentiment, that we would see impacts on financial markets, that we might see flight to safety flows that could push up the dollar or other so-called safe-haven currencies. I don’t want to overblow the likely impact but we are aware of them.. we will watch them and consider those impacts as we make future decisions on monetary policy.
“I don’t think that [a Brexit-induced U.S. recession] is the most likely case, but we just don’t really know what will happen and we will have to watch very carefully.”
“There is a loss of momentum, that’s what those negative numbers show. And we see the same thing in the recent job reports that I referred to in my testimony. So without a doubt, in the last several months a number of different metrics suggest a loss of momentum, not a deterioration in the labor market, but a loss of momentum in terms of the pace of improvement and that is an important consideration as I mentioned. We believe that will turn around, we expect it to turn around, but we are taking a cautious approach and watching very carefully to make sure that that expectation is borne out before we proceed to raise interest rates further.”
“I feel the consequences for the United States and the global economy of defaulting on Treasury debt would be very severe. U.S. Treasury securities are the safest and most liquid benchmark security in the global financial system. They play a critical role in financial markets and the consequences of such a default, while they are uncertain, I think there could be no doubt that it would be long-run harmful to U.S. interests and at a minimum result in much higher borrowing costs for American households and businesses.”
“Our authority is extremely limited. It wouldn’t be appropriate for us to give loans to Puerto Rico. We have very limited authority to buy municipal debt and the authority we have, if we were to buy eligible debt, I don’t think it would be helpful to Puerto Rico. Beyond that we have no ability to make emergency loans. This is a matter for Congress, it’s not something that is appropriate for the Federal Reserve.”
“We do have standards that we expect financial institutions to meet and just what’s expected depends on the complexity and importance of the firm. So we do regard this as a very significant threat....
“We are certainly supervising financial institutions’ ability to address cyber threats.”
“In the United States and in many other advanced nations where interest rates are at very low levels, it’s common to say that monetary policy (and) central banks have been carrying the load. In many parts of the world fiscal policy has, because of concern about large debt or deficits, not played a supportive role. I think we’ve achieved a lot in the United States... But if there were to be a negative shock to the economy ... starting with very low levels of interest rates, we don’t have a lot of room using our traditional tried-and-true method to respond. If fiscal policy were more expansionary, this neutral level of interest rates ... would be higher...”
“I believe we do have the legal basis to pursue negative rates but I want to emphasize it is not something that we are considering. This is not a matter that we are actively looking at, considering when we’ve looked at that in the past we have identified significant shortcomings of that type of approach. We don’t think we are going to have to provide accommodation and if we do, that’s not something that’s on our list.”
“We used forward guidance in the aftermath of the crisis in order to help market participants understand how serious the crisis was and how long we thought we would continue to maintain the federal funds rates. We are not relying very much on forward guidance.”
“I think it would usher in a period of uncertainty and it is very hard to predict, but there could be a period of financial market volatility that would negatively affect financial conditions and the U.S. economic outlook. That’s by no means certain, but it is something that we will be carefully monitoring.”
“The committee expects that the federal funds rate is likely to remain for some time below the levels that are expected to prevail in the longer run because headwinds, which include restraint on U.S. economic activity from economic and financial developments abroad, subdued household formation and meager productivity growth, mean that the interest rate needed to keep the economy operating near its potential is low by historical standards.”
“I would not at this time say that the threats from low rates to financial stability are elevated. I do not think they are elevated at this time. But of course it is something that we need to watch because it can have that impact.”
Reporting by Ann Saphir, Jonathan Spicer, Lucia Mutikani and Lindsay Dunsmuir; Editing by Andrea Ricci