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 "I don't expect the (Federal Open Market Committee) is going to be
soon in the situation where it is necessary to cut rates," Yellen
said. "There is always a risk of a recession...and global financial
developments could produce a slowing in the economy," she added.
Yellen said she expected continued U.S. economic growth would allow
the Fed to pursue its plan of "gradual" rate hikes, but her comments
kept the central bank's options open.
"I think we want to be careful not to jump to a premature conclusion
about what is in store for the U.S. economy. I don't think it is
going to be necessary to cut rates."
Investors have all but ruled out further interest rate rises this
year, after the Fed raised its fed funds rate for the first time in
a decade in December.
"The general message she intended to deliver is that additional rate
hikes remain the base case, but markets have to stabilize before we
see more," said Cornerstone Macro analyst Roberto Perli.
 Stock indexes worldwide recovered some ground before ending little
changed on Wednesday after Yellen's comments eased concerns about
the likely path of U.S. interest rates.
Worries about Chinese economic growth, poor U.S. fourth quarter
corporate earnings, and the impact on capital spending and
employment in the energy sector of the slump in oil prices, have
roiled global markets in the past month.
The MSCI all-country world equity index <.MIWD00000PUS> ended little
changed around 358.08, while the S&P 500 stock index closed steady
at 1,851.86.
The U.S. dollar fell to a 15-month low against the yen as investors
backed away from earlier expectations that the Federal Reserve would
continue to raise interest rates.
"What Yellen said has been taken positively," said Richard Sichel,
chief investment officer of Philadelphia Trust Co in Philadelphia.
“Stocks in general are cheaper now than they were three days ago or
three months ago, so there’s an opportunity to step in."
YELLEN ACKNOWLEDGES RISKS BUT SEE U.S. ECONOMY HEALTHY
Yellen's comments were her first since the Fed's December rate hike,
allowing her to take stock of several weeks in which concerns have
grown about slowing U.S. growth, a continued collapse in oil
markets, a downturn in U.S. equities, and more than one suggestion
that the Fed's December move was a mistake.
Some of the most pointed questions from lawmakers on the House
Committee on Financial Services, however, focused less on the broad
economics of the Fed's rate hike and more on the tools the central
bank has used to achieve it, particularly the payment to banks of
interest on the roughly $2.5 trillion in reserves held at the Fed.
While Yellen said the interest payments on bank reserves are
currently an indispensable part of the Fed's arsenal to raise short
term interest rates, the program drew bipartisan criticism.
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"This is going to the big banks, it is a subsidy...Please explain
that," said California Democrat Maxine Waters, in critical comments
that drew agreement from the committee's chairman, Texas Republican
Jeb Hensarling.
As in her other congressional appearances, Yellen also sparred with
Republicans over her opposition to using a stated monetary policy
rule instead of the Fed's discretion in setting interest rates, and
fielded questions from Democrats about continued high unemployment
among blacks and Hispanics.
"Our tools are not ones that can be targeted at particular groups,"
Yellen said, suggesting "job training, educational programs,
programs that address barriers in the labor market, this is
Congress' job to address."
The Fed regards the current 4.9 percent jobless rate as close to
full employment, and Yellen said that could fall even further if the
economy grows as expected.
In her prepared remarks, however, Yellen acknowledged that a series
of global problems have grown worse since the Fed lifted rates from
near zero in December.
"These developments, if they prove persistent, could weigh on the
outlook for economic activity and the labor market," Yellen said in
her semi-annual appearance before lawmakers.
But Yellen emphasized a steady-as-she-goes account of Fed policy,
with good reason to believe the United States economy will continue
to grow and allow the Fed to pursue its plan of gradual rate hikes.
The Fed "expects that with gradual adjustments in the stance of
monetary policy, economic activity will expand at a moderate pace in
coming years and that labor market indicators will continue to
strengthen," she said.
(Reporting by Howard Schneider and Lindsay Dunsmuir; Additional
reporting by Jason Lange, Ann Saphir, Megan Cassella and Lucia
Mutikani; Editing by Andrea Ricci and Clive McKeef)
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