Yellen cites housing and global tensions as economic risks

Fed chair says US economy still needs support given ‘considerable slack’ in labour market

A slumping housing market and geopolitical tensions risk undermining the US economy and bear close watching by the Federal Reserve, the central bank’s chief said last night.

In testimony to Congress, Fed chair Janet Yellen repeated her stance that the economy was still in need of lots of support given the “considerable slack” in the labour market.

While she offered few new clues on the direction of interest rates, Ms Yellen broke ground in outlining the risks facing the economic recovery.

Her mention of geopolitical tensions as a “prominent risk” suggested the Fed was worried the Ukrainian conflict could weigh on the US economy, while her assessment of housing signaled the sector’s slowdown was also a gnawing concern.

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“The recent flattening in housing activity could prove more protracted than currently expected,” Ms Yellen cautioned.

In general, her testimony to the joint economic committee underscored the Fed’s commitment to keeping benchmark overnight interest rates near zero for some time to come.

“The only different language that I caught was her sentence that housing activity has remained disappointing so far this year and bears watching,” said Roberto Perli, a former Fed official and a partner at Cornerstone Macro.

In the two statements the Fed’s policy-setting panel has issued since Ms Yellen took the central bank’s helm in February, it has taken note of the slow housing recovery.

Ms Yellen offered greater detail. “Mortgage rates went up quite a lot over the spring and summer,” she told politicians. “They are still quite low by historical standards, so in that sense housing remains affordable, and I expect housing to pick up.”

“But ... a recovery that seemed to be in progress really has now flattened out.”