ARI SHAPIRO, HOST:
World financial markets are in more turmoil today as investors try to figure out what's going on with the global economy. In Washington, lawmakers were trying to do the same thing as they quizzed Federal Reserve Chair Janet Yellen for the second day in a row. NPR's John Ydstie reports.
JOHN YDSTIE, BYLINE: Today, Yellen was at the Senate Banking Committee delivering her semiannual report on the U.S. economy. Searching for reasons why global and U.S. markets are tumbling, Senator Dean Heller, a Republican from Nevada, asked this question.
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DEAN HELLER: Do you feel that you or the feds are responsible for this decline?
YDSTIE: Responsible because the Fed raised interest rates in December. Yellen pointed out there was very little market reaction right after that rate hike. She argued that the current selloff was precipitated by the devaluation of China's currency and the dramatic drop in oil prices.
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JANET YELLEN: Those things have been the drivers, and they've been associated with broader fears that have developed in the market about potential for weakening global growth.
YDSTIE: One reason for the selloff in the U.S. is that many investors believe the global growth slowdown will undermine U.S. growth which has been the strongest in the industrialized world. A Wall Street Journal survey of economists now puts the chance of a U.S. recession this year at 20 percent. Yellen is not convinced.
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YELLEN: We have seen global economic and financial developments that may well affect the U.S. outlook.
YDSTIE: But she said she doesn't think a recession is the most likely scenario. Today, U.S. stocks fell sharply but cut their losses late in the afternoon. The Dow industrials closed down 1.6 percent, and investors heading for the safety of the 10-year U.S. treasury pushed its interest rate down sharply.
Another factor in the tumble - central banks in Europe and Japan have moved to negative interest rates to boost growth. Negative rates will squeeze profits on already stressed European banks. Their stocks have been battered, and U.S. banks have been hit, too. That's partly because there's concern the Federal Reserve might also move to negative rates. Yellen said today the Fed is skeptical of the idea, but the policymakers were studying it, and she did not rule it out. John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright NPR.
