Fed's Yellen Warns Of Risks Facing US Economy

US Federal Reserve chair Janet Yellen has warned of a series of dangers that could throw the US economy off track in remarks that will be seized upon over any sign about the path of interest rate hikes.

Ms Yellen said tightening financial conditions driven by market turmoil together with uncertainty over China were among the factors that could knock otherwise solid growth off course.

She (Munich: SOQ.MU - news) warned that dangers including a slump in commodity prices could trigger financial stresses in emerging market economies that could threaten the US.

"Should any of these downside risks materialise, foreign activity and demand for U.S (Other OTC: UBGXF - news) . exports could weaken and financial market conditions could tighten further," Ms Yellen said.

She told a congressional hearing in Washington that there were good reasons to expect moderate growth in the world's biggest economy allowing the Fed to pursue "gradual" adjustments to rates.

The US increased rates in December for the first time since the financial crisis as policy makers judged that the economy was ready to emerge from the period of ultra-low borrowing costs that had helped nurse it back to health.

But since then global market turmoil and fears over world growth, especially in China, have seen the outlook become gloomier.

Other central banks have responded in dovish fashion, with Japan cutting rates below zero and the European Central Bank indicating it is ready to enact further stimulus.

Recent gloomy remarks by Bank of England governor Mark Carney have pushed back expectations for a UK rate hike as far as next year.

Ms Yellen's comments, while warning of risks, kept the Fed's options open on whether to pursue further hikes this year. Meanwhile she said she did not expect a rates cut but that the Fed would do whatever was necessary to achieve its goals.

Rob Carnell of ING Bank said: "Financial markets may see this as dovish speech overall, though probably not out of line with expectations."

The US dollar was little changed against the pound following the remarks.