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Federal Reserve boss Yellen cautious amid UK's EU vote


Federal Reserve chairwoman Janet Yellen on Capitol Hill in Washington (AP)

Federal Reserve chairwoman Janet Yellen on Capitol Hill in Washington (AP)

Federal Reserve chairwoman Janet Yellen on Capitol Hill in Washington (AP)

The chairwoman of the Federal Reserve has said the US central bank will proceed cautiously in raising interest rates amid a number of uncertainties facing the US economy, including Britain's referendum on Europe.

Janet Yellen said the UK's vote on EU membership and a potential economic slowdown in China had raised concerns about the strength of the global economy.

In delivering the Fed's twice-a-year economic report to Congress, she also pointed to a drop-off in US jobs growth between April and May as a reason for keeping rates on hold. She said the central bank will be keeping a close watch to see if the weaker momentum in employment growth is temporary or a sign of a bigger problem.

She also stood by the same cautious approach the central bank took following its meeting last week when it left a key interest rate unchanged.

The Fed boosted its benchmark rate by a quarter-point in December to a range of 0.25% to 0.5% and at the time projected another four rate hikes this year.

But since December, financial market turbulence at the beginning of the year, a global economic slowdown and a sharp drop in oil prices have kept the Fed on the sidelines.

Fed officials are now projecting just two rate hikes this year. At last week's meeting, the number of Fed officials who forecast just one rate hike this year climbed to six from just one in March.

In her evidence before the Senate banking committee, Ms Yellen acknowledged the problems weighing on the economy.

She said that "vulnerabilities in the global economy" included China's challenges as it transitions away from reliance on export-led growth.

Ms Yellen said the upcoming vote in Britain over leaving the EU "could have significant economic repercussions".

The head of the European Central Bank (ECB) said it "is ready for all contingencies following the UK's EU referendum".

Mario Draghi told the EU Parliament that the ECB is "ready to act by using all the instruments available within our mandate".

The ECB sets monetary policy for the 19 EU countries that use the euro.