Thursday, October 23, 2014
Inquirer Daily News

Yellen says economy still not ready to end stimulus

Fed Chair Janet Yellen testifies on Capitol Hill. "A high degree of monetary policy accommodation remains appropriate," she said.
Fed Chair Janet Yellen testifies on Capitol Hill. "A high degree of monetary policy accommodation remains appropriate," she said. AP
WASHINGTON - Federal Reserve Chair Janet Yellen told lawmakers the central bank must press on with monetary stimulus as "significant slack" remains in labor markets and inflation is still below the Fed's goal.

"A high degree of monetary policy accommodation remains appropriate," Yellen said Tuesday in semiannual testimony to the Senate Banking Committee. "Although the economy continues to improve, the recovery is not yet complete."

Yellen cited labor-market weaknesses even after an unexpectedly fast decline in unemployment put pressure on Fed officials to consider accelerating their timetable for an interest-rate increase. Yellen said that rates were likely to stay low for a "considerable period" after bond purchases end, which she said could happen after the Fed's October meeting.

While the economy appears likely to rebound from a first-quarter contraction, Yellen said, the progress "bears close watching." Signs of labor-market slack include slow wage growth and low labor-force participation, Yellen said. Housing "has shown little recent progress" as higher mortgage rates discourage buyers.

Unemployment fell to an almost six-year low of 6.1 percent last month, close to the level most Fed officials predicted for the end of the year. Payrolls surged by 288,000 workers, boosting the average monthly advance so far this year to almost 231,000.

Even so, some of the labor-market gauges watched by Yellen show continued weakness. The participation rate, which measures the share of working-age people in the labor force, was 62.8 percent last month, matching the lowest since 1978. Among the unemployed, about a third have been out of work for six months or longer.

Some Fed officials, including Philadelphia President Charles Plosser, have urged the board to consider raising rates sooner than it might otherwise to better retain control of any inflation.

Answering questions from senators, Yellen said: "There's no formula and there's no mechanical answer that I can give you about when the first rate increase will occur. It will depend on the progress of the economy and how we assess it based on a variety of indicators."

Yellen said that, while there were "mixed signals regarding the economy," her "overall view is more positive." Still, "we have in the past seen false dawns," in the economy and "we need to be careful to make sure that the economy is on a solid footing before raising interest rates."

Yellen served as a Fed governor, San Francisco Fed president, and Fed vice chair before succeeding Ben S. Bernanke in February. She is scheduled to appear before the House Committee on Financial Services at 10 a.m. Wednesday in Washington.

Jeff Kearns and Matthew Boesler Bloomberg News
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