(Bloomberg) -- Federal Reserve Chair Janet Yellen suggested thatthe central bank might delay, but not abandon, planned interest-rate increases inresponse to recent turmoil in financial markets.

In presenting the Fed’s semi-annual economic report to Congress,Yellen said the turbulence had "significantly" tightened financialconditions by pushing down stock prices, pushing up the dollar andraising some borrowing costs.

"These developments, if they prove persistent, could weigh onthe outlook for economic activity and the labor market," she toldthe House Financial Services Committee on Wednesday.

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Policy makers provisionally penciled in four quarter percentagepoint rate increases for 2016 when they hiked borrowing costs inDecember for the first time since 2006.

The financial markets since then have been rocked by a series ofshocks, from a depreciation of China’s currency to a steep fall inoil prices, that raised concerns among investors about the outlookfor the world economy.

In spite of the big moves in the markets, Yellen said she hasn’tseen a steep drop-off in economic growth, either in the U.S. orglobally. "Recent economic indicators do not suggest a sharpslowdown" in China, she added.

She forecast that the American economy would bounce back thisquarter after slowing in the final three months of 2015 and saidshe expects wage gains to accelerate now that unemployment has fallen to aneight-year low.

"Yellen maintained a cautiously optimistic outlook, whileacknowledging increasing downside risks," Kathy Bostjancic, aneconomist at Oxford Economics USA in New York, said in a researchnote.

The Fed chair said the policy-making Federal Open MarketCommittee continues to see the next move in interest rates as up,rather than down. "I do not expect the FOMC is going to be soon ina situation where it’s necessary to cut rates," she said.

She reiterated the Fed’s intention to raise rates gradually,allowing the economy to continue to expand at a moderate pace andthe labor market to improve further.

"The message that I think she is trying to send for policy isthat tightening will be delayed, but that the longer-run outlook isnot changed much," said Jonathan Wright, a professor at JohnsHopkins University in Baltimore and a former Fed economist.

Yellen was non-committal on whether the Fed would follow thelead of some other central banks and push rates below zero if theeconomy deteriorated significantly.

"We will look at it and should look at it" as part of prudentplanning, she said. Yellen also said the central bank had not yetdetermined whether it would be able to legally implement negativeinterest rates.

Yellen spent much of her three-hour-plus testimony fending offattacks on the central bank. In a rare display of unity, lawmakersfrom both the Republican and Democratic parties criticized the Fedfor providing subsidies to the banks by paying themhigher-than-market interest rates for their reserves.

The Fed chief defended the practice, arguing that it allowed thecentral bank to maintain a big balance sheet and thus providesupport to the economy.

Yellen’s appearance before Congress "conveyed a message of calmfrom the Federal Reserve," Bloomberg Intelligence economists CarlRiccadonna and Rich Yamarone said in a note summing up hertestimony.

"She acknowledged potential points of concern, including thedeterioration in financial conditions, diminished internationalgrowth prospects and fallout from low commodity prices, but shealso re-emphasized the bright spots in the economy."

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