WASHINGTON Feb 11 New Federal Reserve Chair
Janet Yellen said on Tuesday the labor market recovery is "far
from complete" despite a drop in unemployment, yet she said the
U.S. central bank expects to continue trimming policy stimulus
in measured steps due to broader improvements in the economy.
In her first public comments as Fed chief, Yellen, giving a
balanced testimony to a House committee, nodded to the recent
volatility in global financial markets, but said at this stage
it does "not pose a substantial risk to the U.S. economic
She emphasized continuity in the Fed's approach to policy,
saying she strongly supports the approach driven by her
predecessor, Ben Bernanke.
While the unemployment rate has fallen by 1.5 percentage
points since the latest bond-buying program began in September
of 2012, at 6.6 percent the rate remains "well above levels" the
Fed sees as consistent with maximum sustainable employment,
"(T)he recovery in the labor market is far from complete,"
she said according to prepared remarks to the
Republican-controlled House Financial Services Committee.
Yellen, in just her second week on the job, cited the
"unusually large fraction" of jobless Americans who have been
out of work for more than six months, and the "very high" number
of part-time workers who would prefer full-time jobs.
"These observations underscore the importance of considering
more than the unemployment rate when evaluating the condition of
the U.S. labor market," she said.
More than five years after the recession ended, the Fed has
embarked on perhaps its most difficult policy shift as it tries
to back away from flooding the financial system with ultra-easy
money while at the same time convince investors that interest
rates will stay near zero well into next year.
Encouraged by momentum in the economy last year, the Fed has
trimmed asset purchases twice since December; it now buys $65
billion in Treasuries and mortgage bonds each month, to keep
borrowing costs low and encourage investment and hiring.
Yellen said the Fed will "likely reduce the pace of asset
purchases in further measured steps at future meetings" if
economic data broadly supports policymakers' expectation of
improved labor markets and a rise in inflation.
She said the purchases are not on a pre-set course,
repeating the Fed's policy line.
A decidedly mixed run of data has raised questions over
whether the U.S. economy can sustain the strength it showed in
the second half of last year. Unemployment has dropped to 6.6
percent, from 7.9 percent a year ago, yet the fewer than 200,000
new jobs created over the past two months is insufficient to
sustain last year's economic growth.
The two months of weak U.S. jobs growth and a recent
selloff in emerging markets that also hit Wall Street could
complicate things for the Fed.
Yellen said the Fed was "watching closely the recent
volatility" adding: "Our sense is that at this stage these
developments do not pose a substantial risk to the U.S. economic
outlook. We will, of course, continue to monitor the situation."
Noting inflation remains below the Fed's 2 percent target,
Yellen said "the recent softness reflects factors that seem
likely to prove transitory, including falling prices for crude
oil and declines in non-oil import prices."
The Fed will not let inflation run "persistently above or
below" its 2-percent goal, she added.
Long concerned with the pain the 2007-2009 recession caused
American workers, Yellen is sometimes seen as more dovish than
Bernanke and thus willing to do more to stimulate the economy
even if inflation could eventually ramp up as a result.
Yet Yellen appeared to want to reinforce the Fed's
determination to halt the money-printing presses later this year
while ensuring investors that a rise in interest rates remains a
long way off.
Her testimony was the Fed's semiannual monetary policy
report. It was released ahead of the 10 a.m. (1500 GMT) hearing
of the committee.
The committee's chairman, Jeb Hensarling of Texas, is a
long-standing critic of the aggressive Fed stimulus, which he
argues has enabled a huge run-up in U.S. debt.
Republicans have signaled they want to press Yellen on what
they see as the limited effectiveness, and even dangers, of a
central bank balance sheet now worth $4 trillion and counting.
One possible pitfall for Yellen would be to get ensnared in
debate with lawmakers over fiscal policy, an area over which the
Fed has no jurisdiction even though decisions last year in
Congress have slowed the recovery. Others include the
politically charged area of bank supervision, and persistent
worries that the easy-money has stoked potentially dangerous
Yellen, the first woman to chair the Fed in its 100-year
history, testifies to the Democrat-controlled Senate Banking
Committee on Thursday.