Federal Reserve Chair Janet Yellen on Tuesday called the recovery in the labor market “far from complete,” emphasizing the high numbers of long-term unemployed and part-time workers.
In her first appearance on Capitol Hill since being sworn in last week as the steward of the nation’s economy, Yellen noted the job market has made progress since the Fed began its latest round of stimulus in late 2012. The unemployment rate has fallen from 8.1 percent to 6.6 percent.
But she said in the prepared testimony that even that rate is still too high. She pointed out that an “unusually large fraction” of workers have been out of a job for six months or longer. She also said too many people are forced to work part-time when they would prefer full-time positions.
“These observations underscore the importance of considering more than the unemployment rate when evaluating the condition of the U.S. labor market,” Yellen said.
That statement is significant because joblessness is fast approaching the threshold set by the Fed for raising its benchmark short-term interest rate. Yellen reiterated on Tuesday that the central bank will likely keep rates near zero “well past” the time that the unemployment rate reaches the 6.5 percent threshold.
The Fed has debated lowering the bar to 6 percent but eventually tabled the measure. Yellen’s comments Tuesday suggest the Fed is moving away from tying rates to a single number in favor of a broader array of indicators of labor-market health.
Yellen also underscored that she expects to continue the strategy laid out by former chairman Ben S. Bernanke for winding down the Fed’s massive bond-buying program that was intended to jumpstart the economy. She said Tuesday that she believes that effort has been successful so far.
The central bank has been tapering its purchases of long-term securities by $10 billion a month since January and will likely continue in similar, measured steps until the program ends later this year. Yellen said the cuts remain on track if the recovery continues but emphasized that the program is not on a preset course.
But investors have been confused about the Fed’s plan for the program. Markets swung wildly last year when Bernanke seemed to hint the Fed could scale back its bond-buying more quickly than expected.
On Tuesday, Republican Rep. Jeb Hensarling of Texas, who heads the House committee, said the Fed risks confusing markets again over its plans to increase interest rates.
“It’s one thing that the Fed says,” he said. “It’s another thing that markets may hear.”
Yellen offered a generally optimistic assessment of the nation’s economic prospects, despite the past two months of disappointing job growth. Investors also had worried that recent turmoil in developing countries could throw a wrench in the Fed’s plans as stock markets around the globe reacted. Yellen acknowledged those concerns on Tuesday but said they did not post a “substantial risk” to the recovery.
“There was no new major insight in the prepared remarks from Yellen, outside of her acknowledgment that nothing has changed in the Fed’s view on the economy,” said Millan Mulraine, deputy head of research and strategy at TD Securities.
U.S. stock markets opened modestly higher following the release of Yellen’s testimony. Yellen noted that the Fed is conducting another round of so-called “stress tests” of the nation’s largest banks. Results are expected to be released in March.
Yellen also defended the central bank’s continued use of unconventional policy tools, such as the bond-buying program and forward guidance, to stimulate the economy.
“I believe that I am a sensible central banker, and these are very unusual times for monetary policy,” she said.
0 comments:
Post a Comment