Things got a bit testy Thursday as Federal Reserve chair Janet Yellen said that the decision to raise interest is not the source of the current market meltdown.
During a multi-hour testimony to the Senate Banking, Housing and Urban Affairs Committee, Sen. Dean Heller (R-NV) pointed out that the crash in financial markets occurred right after the Fed’s 0.25% rate hike in December.
“You raised rates by a quarter of a per cent on December 16, at that time the S&P 500 closed at 2,073. Yesterday it closed at 1,851, and I think it’s down another 34 to 35 points plus today,” said Heller.
“Do you feel you or the Fed is responsible for this decline?”
Yellen’s response mirrored much of what economists have been highlighting since the beginning of the sell-off. Here’s her response:
“The immediate market response — and for a number of weeks, the reaction to the Fed decision — was quite tranquil … I think [the decision] was well communicated and was expected. There was very little market reaction.
Around the turn of the year, we began to see more volatility in financial markets. Some of the precipitating factors seem to be the movement in Chinese currency and the downward move in oil prices. I think those things have been the drivers and have been associated with broader fears in the market of weakening global growth and possible spillover into inflation. So I don’t think it’s mainly our policy.”
Heller than pivoted to oil prices, asking if Yellen felt that the price drop is still good for consumers and the economy. Heller noted that in Yellen’s previous testimony to the committee she had expressed belief it was a good thing.
Again, Yellen defended herself:
“Clearly there have been negative consequences of the decline in oil prices in sharp job cuts and cutback in drilling activity and capital spending and that’s been…”
Heller than interrupted, asking Yellen if she felt she made a mistake a year ago by saying a drop would be a good thing for the economy.
“On balance I would still say it is true for the United States,” replied Yellen. “We’re a net importer of oil in spite of our large production and the gains to households from lower oil prices, they average about $1,000 per household.”
She continued that so far the cuts from oil producers had been outweighing the benefit in terms of economic growth.
So yes, Yellen recognises that there are troubles in the markets, as she has said repeatedly during her two days on Capitol Hill. But no, she doesn’t think the drops in oil or stock prices are her and the Fed’s fault.
On Thursday, stocks were selling off again, with the Dow falling as much as 330 points (over 2%) during the trading session.
NOW WATCH: Here’s the question that prompted Cam Newton to storm out of his postgame press conference
Business Insider Emails & Alerts
Site highlights each day to your inbox.