WASHINGTON, Feb 10 (Reuters) - The following are highlights of Federal Reserve Chair Janet Yellen’s question-and-answer session on Wednesday before the U.S. House Financial Services Committee, where she delivered the central bank’s semi-annual monetary policy report to Congress.
“I do not expect that the FOMC is going to be soon in a situation where it’s necessary to cut rates. Let’s remember that the labor market is continuing to perform well, to improve. I continue to think that many of the factors holding down inflation are transitory. So while there is always some risk of recession and I recognize and have just stated that global financial developments could produce a slowing in the economy, I think we want to be careful not to jump to a premature conclusion about what is in store for the U.S. economy. So I don’t think it’s going to be necessary to cut rates. That said, monetary policy as I said is not on a preset course, and if it turned out that would be necessary, obviously the FOMC would do what is needed to achieve the goals that Congress has assigned us.”
“GDP growth really clearly slowed a lot in the fourth quarter. My expectation is that it will pick up this quarter. But on the other hand financial conditions have tightened considerably and the could have implications to the outlook.”
“I’d say the signs of wage growth increasing, they’re tentative at this point. There are some hopeful signs but I think if the labor market continues to progress we are very hopeful we will see faster progress on wages.”
“We are taking account as you said of the fact that the energy sector is very hard hit. We are losing jobs there, but with respect to employment, although there really are very severe losses, it is a pretty small sector of the workforce overall.
“We are seeing massive cutbacks in drilling activity and that’s rippling through to manufacturing generally, where output is depressed. So it is having negative consequences.
“On the other hand, if you look at the difference in oil prices now relative to 2014, for the average American household we are looking at a savings of a $1000 a year, and that’s boosting consumer spending.”
“We are going to wait to shrink our balance sheet until a point when short-term interest rates are somewhat higher.”
“In the spirit of prudent planning, it is something that, in light of European experience, we will look at, we should look at - not because we think there is any reason to use it, but to know what could potentially be available. And it isn’t just a question of legal authority. It’s also a question of, could the plumbing of the payment system in the United States handle it? Is the institutional structure of our money markets compatible with it? We’ve not determined that.”
“At this point, the debt-to-GDP ratio looks like it should be sustainable at present levels for a number of years. As the population ages, it will - this is evident from CBO projections - be on an unsustainable upward course. This is something Congress has known about for decades and it’s important to address.”
“If you look at the path that U.S. debt is on under current policies, it will rise from the present levels to levels well above 100 percent of GDP and continue to rise more or less indefinitely. Wherever you draw the line, you have got to conclude that’s an unsustainable economic situation.”
“We are watching very carefully what’s happening in global financial markets. It would appear that the stresses we have seen since the turn of the year relate to uncertainties regarding Chinese exchange-rate policy, uncertainties around the price of oil. We have not seen shifts that seem significant enough to have driven the sharp moves we’ve seen in markets. It would seem to be increased fears of recession risk that is resulting in rises in risk premia. We’ve not yet seen a sharp drop-off in growth, either globally or in the United States. But we certainly recognize that global market developments bear close watching.”
“As I mentioned, the financial conditions have become less supportive to growth, and we recognize that these developments may have implications for the outlook, which we are in the process of assessing. I want to make clear that monetary policy is not on a preset course, and so our evaluation of the likely impact of those developments on the economic outlook and our ability to meet both our employment and inflation objectives, those are the factors that will govern the future stance of monetary policy.”
“I believe that if we were to follow the plan of selling off long-term assets, it could prove very disruptive to the expansion. It’s a strategy that I think could harm the economic recovery and it certainly is not what we have set out to the public. We said we would shrink our balance sheet in a gradual and predictable way.”
“In the spirit of prudent planning we always try to look at what options we would have available to us, either if we need to tighten policy more rapidly than we expect, or the opposite, to loosen policy. So we would take a look at it. But the legal issues, I am not prepared to tell you it’s been thoroughly examined at this point.
“I am not aware of anything that would prevent us from doing it but I am saying that we have not fully investigated the legal issues - that still needs to be done.”