The top U.S. central banker told members of the Joint Economic Committee that she has two big fears: The first is "heightened geopolitical tensions or an intensification of financial stresses in emerging market economies," which could threaten confidence in the global economic recovery. Yellen has clarified in other contexts, however, that it's not the Fed's role to ensure stability in emerging markets such as Brazil or Turkey, echoing her predecessor, Ben Bernanke.
The second of Yellen's concerns is the possibility that "recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery."
Data on housing “have remained disappointing so far this year and will bear watching,” Yellen said. Existing home sales, new-home sales and housing starts all fell on a year-over-year basis in March.
But there are a few big things that don't overly bother Yellen: She isn't worried that economic growth slowed to near zero in the first quarter of 2014. She views that “pause” as mostly a one-off phenomenon due mainly to the “unusually cold and snowy winter weather,” and noted that other economic indicators suggest that growth will pick up in the quarters ahead. Wall Street economists also forecast strong growth over the rest of the year.
Yellen also isn’t concerned, right now, that financial bubbles are a threat to the economy. She said that stock market and housing prices “remain within historical norms,” and banks have raised capital ratios and are better prepared for downturns.
As for what Yellen's statements mean for monetary policy, the answer appears to be very little. She noted that high unemployment means that “a high degree of monetary accommodation remains warranted,” but otherwise said little to expand on the Fed's guidance regarding its quantitative easing and zero interest rate programs.