Yellen to Congress: Caution

   The U.S. economy, while reasonably healthy now, faces increasing drag from struggling economies around the world.
   That's the crux of what Fed chair Janet Yellen told Congress this week. The warning flag was the clearest sign the Fed sees an approaching storm that could drag the American economy away from its path to full recovery.
   Readers of this space may remember that these cautionary notes were sounded here many weeks ago even as the Fed lightly touched the economic brakes to stabilize a recovering economy.

   Most recently, we noted ten days ago the good news for the U.S. economy included more jobs, a lower unemployment rate and another rise in Gross Domestic Product.
   The not-so-good news was that other major nations are still struggling, including a "slowdown and rebalancing" in China, increasing pressure for the United Kingdom to leave the European Union, a negative interest rate from Japan's central bank, and confusion among delegates to the World Economic Forum in Davos, Switzerland, as to the direction of the world's economy.
   So while the U.S. is economically healthy, the rest of the world is not.
   The International Monetary Fund reported "subdued demand and diminished prospects" among emerging markets and developing countries. And since these nations account for more than 70 percent of global growth, the IMF noted, economic activity declined for the fifth consecutive year.
  The Commerce Department reported GDP growth in the fourth quarter of 2015 of 0.7 percent, compared to an increase of 2.0 percent in the third quarter. Separately, the IMF predicted that U.S. total output would rise by 2.6 percent this year, compared to 2.5 percent in 2015.

   Now, the Fed is not quite so sure it will boost its key interest rate any time soon. In her statement to Congress this week, Yellen said the central bank will be cautious about tightening monetary policy rather than risk pushing the economy back into recession.
   "Financial conditions in the United States have recently become less supportive of growth," Yellen said, and "if they prove persistent, could weigh on the outlook for economic activity."
   In particular, she added, foreign developments "pose risks to U.S. economic growth." And this uncertainty, Yellen said, has led to "increased volatility" in global markets.
   Separately, the Department of Labor emphasized that there have been 71 consecutive months of job growth, adding 14 million jobs, and the unemployment rate has plummeted from a "nearly catastrophic high of 10 percent" to its current rate of 4.9 percent.
   In all, as noted here before, the American economy is on reasonably sound footing. However, global stumbling, ranging from below zero interest rates posted by Japan's central bank, a change of pace in China, and the possibility of the Britain leaving the European Union dance floor, may stop the music for the U.S. recovery, and cause it to trip over itself and fall back into recession.