(Reuters) - Tightening financial conditions driven by falling stock prices, uncertainty over China and a global reassessment of credit risk could throw the U.S. economy off track from an otherwise solid course, Federal Reserve Chair Janet Yellen said on Wednesday in prepared testimony to Congress.

KEY POINTS:

* In testimony that combined a steady-as-she-goes account of Fed policy with an acknowledgement of intensifying risks, Yellen said there are good reasons to believe the United States will stay on a path of moderate growth that will allow the Fed to pursue "gradual" adjustments to monetary policy.

* Family incomes and wealth are rising, domestic spending "has continued to advance," and business investment outside the oil sector accelerated in the second half of the year, she said. Yellen said she expects the labor market to continue to improve and inflation eventually rise toward the Fed's target despite a recent drop in inflation expectations cited by some policymakers as particularly unnerving.

COMMENTS:

VASSILI SEREBRIAKOV, CURRENCY STRATEGIST, BNP PARIBAS, NEW YORK:

“There weren’t any major surprises. I think the remarks were balanced. I think the assessment of U.S. fundamentals was similar to the January FOMC statement. She did acknowledge stress in financial markets and without sending any major alarm signals. I don’t think it changes market expectations much at this point. Markets are focused on credit and equities and I don’t think it’s going to move the needle on March expectations, which are pretty much at zero at this point. We’ll see how the questions play out.

“Comments were balanced, weren’t any specific policy signals. We have the Q&A, which might bring more targeted questions (about) the March meeting, for example, but the speech itself was kind of noncommittal on the timing of future tightening.”

BRIAN J. JACOBSEN, CHIEF PORTFOLIO STRATEGIST, WELLS FARGO ASSET MANAGEMENT, MENOMONEE FALLS, WISCONSIN:

"In Yellen’s prepared testimony, I think she pushed out the next rate hike. She said that in March, they said they would start hiking when they became reasonably certain that inflation would return to the 2 percent target. However, previously in the remarks, she said that once the dollar stops rising and oil stops falling would they be reasonably certain that inflation would move up over the medium term.

"Until there is stability in the price of oil and the value of the dollar, I wouldn’t expect much more action out of the Fed."

JOE MANIMBO, SENIOR MARKET ANALYST, WESTERN UNION BUSINESS SOLUTIONS, WASHINGTON:

“I would view it as dollar neutral. Ms. Yellen’s remarks were a clear nod to global weakness and the potential risk that poses to the U.S. economy, but I didn’t see any marked deviation from the Fed’s expected rate path. So I think that can help the dollar stabilize.

“With her acknowledging equity price declines and you see China pop up in the first few lines, that’s going to of course cause a jolt. But once you get into the heart of it and see that Ms. Yellen seems to be maintaining her faith in the outlook of the U.S. economy and still anticipates to raise rates that’s what at the end of the day is supportive of the U.S. currency.”

MARKET REACTION:

STOCKS: U.S. stock index futures trimmed gainsBONDS: U.S. bond prices fell, with long-dated yields outperforming short-dated yieldsFOREX: The dollar rallied

(Americas Economics and Markets Desk; +1-646 223-6300)