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Yellen: Low rates to remain

By Mark Hamrick · Bankrate.com
Monday, March 31, 2014
Posted: 2 pm ET

Federal Reserve Chair Janet Yellen is promising that record low interest rates will be around "for some time."

The Fed's low-rate policy has served to encourage spending and discourage savings. But Yellen says more work is required to repair damage done by the financial crisis and recession.

"While there has been steady progress, there is also no doubt that the economy and the job market are not back to normal health," she told an audience at a Chicago conference.

Investors win, savers lose

Yellen's latest comments are a reminder that there's no immediate change expected in the outlook for investors, borrowers or savers.

The stock market continues to rally, mortgage rates are low and savings rates remain punishing for many, including senior citizens. Bankrate's weekly survey most recently found the one-year CD yield was 0.23 percent for an eighth straight week, while the five-year yield continued to average 0.8 percent.

The speech by the Fed chair comes ahead of Friday's Labor Department report on employment during March. Yellen says the 6.7 percent unemployment rate is "still higher than it ever got during the 2001 recession."

She has repeatedly said the unemployment rate is a less-than-perfect gauge of the health of the job market. Indeed, at the most recent policy-setting session, the Fed backed away from tying the jobless rate to its policies on interest rates and asset purchases.

Many want better jobs

Underlining that point, Yellen says, "The unemployment rate is down, but not included in that rate are more than 7 million people who are working part time but want a full-time job. As a share of the workforce, that number is very high historically."

She says slow wage growth is "another sign that the Fed's job is not yet done."

Yellen says the Fed's extraordinary commitment to boosting the economy "is still needed and will be for some time." She says that view is widely shared at the central bank.

At her news conference following the March 19 Fed meeting, Yellen indicated that short-term interest rates could begin to rise as soon as six months after the Fed's bond purchases end. Stock prices fell that day as some investors took that as a sign that a rate increase could come sooner than expected. After Yellen's latest comments, stocks were rising.

What's being done?

Economist Bob Brusca says the Fed's focus on "short-term" growth underscores a problem because it is coming up with no new measures to address it.

"The problem is (Yellen's) concerned, but they don't really have any tools to address it," says Brusca, chief economist with FAO Economics. "They aren't trying to develop any new tools to address it, and yet she claims to be concerned about it."

Brusca says "dissonance" is being created. He also says the Fed's own outlook continues to predict inflation below the central bank's own target for the next few years.

Are you pleased or frustrated by Yellen's low-rate pledge? How is that affecting your personal financial decisions?

Want to know more about the Fed boss? Read Janet Yellen: The new Federal Reserve chair.

Follow me on Twitter: @Hamrickisms.

 

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