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Fed's Yellen says doesn't think it will be necessary soon to cut rates

The Federal Reserve's policymaking committee does not expect to cut interest rates anytime soon, Federal Reserve Chair Janet Yellen said on Wednesday. "I do not expect that the FOMC is going to soon be in a situation where it is necessary to cut rates," Yellen told a committee of lawmakers in Congress, noting that the strength of the labor market gives her succor. She added that she still expects factors holding down inflation to be transitory.

Fed Vice Chair Fischer spoke on financial reforms Wednesday and said that the new regulatory frame work in U.S. financial markets has not undergone its own stress test. He seemed confident, however, that the more than doubling of common equity capital ratios of the largest U.S. bank holding companies since the crisis has significantly strengthened the health of the financial system. Nevertheless, he said he is concerned that some reforms have exacerbated the stigma of borrowing from the Fed during period of financial stress, as even though there should be less need for loans from the lender of last resort under the new framework, there may yet be a need. Fischer reminded that the Fed has retained its power to lend to insured depository institutions, including U.S. branches of foreign banks (Deutsche Bank springs to mind).

But in emergencies, and with the approval of the U.S. Treasury Secretary, the Fed can also lend through its broad-based borrowing facility, to include extending loans to individual nonbank institutions. He concluded, "Broad-based facilities of the sort that the Fed operated during the financial crisis generally could still be introduced under our new regulations if they were needed to limit the effect of a future crisis on financial markets and the economy."

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