Federal
Reserve Chair Janet Yellen said in her first public comments that although the
economic recovery is far from complete, the Fed was still on track to further
reduce the bond-buying program. Yellen said the Fed will closely monitor the number of
long-term unemployed Americans and those working only part-time but who want a
full-time job, as it begins to plot a tricky reversal of it very accommodative
policy stance.
Yellen
addressed the House Financial Services Committee and made it clear she would
maintain the policy of stimulus implemented by recently-departed chair Ben
Bernanke. Under Bernanke, the Fed bought
trillions of dollars worth of bonds to drive long-term borrowing costs lower in
the wake of the deep 2007-2009 recession. In December, in a nod to a drop in
unemployment and stronger economic growth, it started to scale back its latest
asset purchase program.
Despite a drop in
unemployment by 1.5 percentage points since the stimulus program began in September
2012, the current 6.6 percent unemployment rate remains above what the Fed targets
as maximum sustainable employment. As the unemployment rate has dropped, the
Fed has cut back the amount spent on on a monthly basis. It is now buying $65
billion in Treasuries and mortgage bonds per month. She said, however, the
purchases are not on a pre-set course, repeating the Fed's policy line.
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. And she
reinforced the central bank's expectation that inflation, while low now, will
rise back toward the Fed's 2-percent goal.
Employment Data
The Fed has said it
does not expect to raise interest rates from near-zero until well after the time
the jobless rate drops below 6.5 percent, especially if inflation remains weak.
But with the jobless rate on the cusp of breaching this threshold, policymakers
are considering how best to adjust their guidance.
More than five years
after the 2007-2009 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.
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.