September 3, 2014
Yellen says labour market hasn't recovered yet
Federal Reserve Chair Janet Yellen said today the US central bank was on track to keep reducing its policy stimulus, even as she acknowledged the labor market recovery was "far from complete."
In her first public comments as Fed chief, Yellen said the central bank would need to keep its eye on a broad range of labor market indicators, not just the unemployment rate, as it continued to assess the health of the jobs market.
Yellen, in testimony prepared for delivery to a congressional committee, nodded to the recent volatility in global financial markets, but said at this stage it does "not pose a substantial risk to the US economic outlook."
She emphasized continuity in the Fed's policy strategy, saying she strongly supports the approach driven by her predecessor, Ben Bernanke. Under Bernanke, the Fed bought trillions of dollars worth of bonds to drive long-term borrowing costs lower. In December, it started to scale back its latest asset purchase program.
While the US 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, Yellen said.
"(T)he recovery in the labor market is far from complete," she told the House Financial Services Committee.
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.
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, however, the purchases are not on a pre-set course, repeating the Fed's policy line.
"It's very obvious she is working from the same playbook as Bernanke," said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York. "The Fed will continue cut its bond purchases by $10 billion at each policy meeting the rest of the year."