Fed chair highlights the risks to the US economy

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Federal Reserve chair Janet Yellen said the central bank will continue to provide a high degree of monetary policy accommodation, and cited geo-political turmoil and weak housing data as risks to the US economy.

Yellen, speaking to the congressional Joint Economic Committee yesterday, also indicated concerns over investors exerting risky behaviour given the extended period of low interest rates.

“Some reach-for-yield behaviour may be evident,” Yellen said, pointing to the lower-rated corporate debt markets as an example.

Yellen added that issuance of syndicated leverage loans and high-yield bonds has expanded, while underwriting standards loosened, though she said that these increases appear modest – particularly at large banks and life insurers.

The Fed chief repeated the view of the Federal Open Market Committee that despite the expected US economic growth, considerable slack in the labour markets and low inflation warrants a “high degree of monetary accommodation”.

Last month the Fed reduced its monthly bond purchases to $45bn from $55bn.

Yellen said she sees a “substantial amount” of slack in labour markets, and that persistent inflation below 2 per cent could pose risks.

And she said she was concerned about housing, saying activity was “flattening” and could continue to do so for a “protracted” amount of time.