Fed studies negative rate possibility; unemployment claims decline

Source: Dukascopy Bank SA
"We are watching developments very carefully. I would say there is always some chance of a recession in any year. But the evidence suggests that expansions don't die of old age."
- Janet Yellen, Fed Chairwoman

During the second-day testimony to Congress Fed Chairwoman Janet Yellen stressed that the US central bank was not on a "pre-set" path to normalize the monetary policy amid deteriorating meltdown in global equity markets. As recessions fears build in the US, Yellen did not excluded a "chance" of a downturn ahead. She also said that the Fed is studying whether negative interest rates would help in case conditions worsen further. The Fed had considered negative interest rates in 2010, but decided to refrain. The head of the world's most influential central bank admitted that a weakened global economy and a sharp drop in stock markets was tightening financial conditions quicker than the Fed estimated. Yet, Yellen warned against making hasty conclusions about the extent of threat from overseas to the US economy.

However, Yellen still expected the Fed to gradually hike interest rates this year given resilient US labour market and steady economic growth. The recent report released by the Labor Department revealed that the number of Americans applying for unemployment benefits dropped more than expected last week. Initial claims for jobless benefits dropped 16,000 to a seasonally adjusted 269,000 for the week ended February 6, whereas economists had predicted 281,000 applications. The four-week moving average of claims fell 3,500 to 281,250 last week.

© Dukascopy Bank SA

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