In her first public event since being sworn in to chair the Federal Reserve, Janet Yellen told lawmakers that she remains concerned about jobs. "The recovery in the labor market is far from complete," was how she put it in her testimony before the House Financial Services Committee.
Even so, the new leader of the central bank said it's likely that monthly asset purchases will continue to be scaled back by the Fed, in a winding down of its effort to stimulate the economy.
Full-time wishes, part-time reality
Yellen indicated that the unemployment rate is not the only jobs measure she's watching:
- "Those out of a job for more than six months continue to make up an unusually large fraction of the unemployed," Yellen said.
- "And the number of people who are working part time but would prefer a full-time job remains very high," she added.
Last week, the Labor Department reported that:
- 113,000 jobs were added to payrolls in January -- fewer than expected.
- At the same time, the unemployment rate fell 0.1 percent to 6.6 percent.
An icy shock
Yellen said she was surprised by weaker hiring numbers reported by the Labor Department over the past two months. She cautioned that some of the weakness could be caused by severe winter weather, and she pointed out that another jobs report will be released before the next policy-setting session.
Will she change course? Um, no, not anytime soon
Yellen signaled to the financial markets that there will likely be no immediate changes from the policies of predecessor Ben Bernanke. As the Fed's former vice chair, she reminded lawmakers that she served on the Federal Open Market Committee when the current policies were set in place and that she expects "a great deal of continuity in the FOMC's approach to monetary policy."
On the current program of asset purchases that began in September 2012, Yellen said that, while "purchases are not on a preset course," the FOMC "will likely reduce the pace of asset purchases in further measured steps at future meetings."
At the January meeting, the Fed agreed to a further reduction in monthly bond purchases by $10 billion to $65 billion, mirroring the first reduction announced in December. Yellen told lawmakers that the asset purchases are aimed at encouraging spending, noting improvement in the housing market and auto sales.
Define 'well past'
The Fed has said it expects to keep interest rates at current record low levels. Committee Chairman Jeb Hensarling, R-Texas, asked about the change from the Fed's earlier guidance that suggested crossing a threshold of 6.5 percent in the unemployment rate could lead to an increase in the federal funds rate. That guidance now holds that the current rates will be maintained until "well past the time that the unemployment rate declines below 6.5 percent."
"The conditions facing the economy are extremely unusual," Yellen responded, adding that the Fed is "trying to be as systematic and predictable as we can be."
Appraisal for the centennial
Hensarling's opening statement noted that his committee is seizing upon the Fed's 100th anniversary to hold hearings this year looking into its practices. He said "independence and accountability are not mutually exclusive concepts."
The crystal ball says…
In reaction, Paul Edelstein, economist, IHS Global Insight, says Yellen's testimony confirms his forecasting firm's view that "the Fed will not raise interest rates until late in 2015."
Yellen is scheduled to testify before the Senate Banking Committee on Thursday. Her first scheduled policy-setting session as Fed chair is scheduled for March 18 and 19. Yellen will speak to reporters at a news conference after the two-day meeting concludes.
What do you think about Janet Yellen as the new Fed chair? Do you think interest rates will remain low for a year or more?