News / Economy

Yellen Defends Loose Fed Policy, Says Job Market Still Too Weak

US Federal Reserve Chair Janet Yellen testifies before the Senate Committee on Banking , Housing, and Urban Affairs on Capitol Hill in Washington, DC, July 15, 2014.
US Federal Reserve Chair Janet Yellen testifies before the Senate Committee on Banking , Housing, and Urban Affairs on Capitol Hill in Washington, DC, July 15, 2014.
Reuters

Federal Reserve Chair Janet Yellen said U.S. labor markets are far from healthy and signaled the Fed will keep monetary policy loose until hiring and wage data show the effects of the financial crisis are “completely gone.”

Despite strong recent jobs reports and other signs of continuing recovery, Yellen emphasized in testimony to the Senate Banking Committee that she won't conclude the economy has recovered until wages start rising and discouraged workers return to the labor force.

In its latest semiannual report to Congress, the Fed did cite unease about some aspects of U.S. securities markets, taking the unusual step of singling out biotechnology and social media stocks for their “stretched” valuations.

The observation hit biotech stocks with some of their biggest losses in months, while social media companies like Yelp slid as much as 4 percent.

But Yellen's overall testimony and an accompanying written report to Congress said asset values were in line with “historic norms,” and that the economy would continue to grow if supported by the Fed's current low interest rates.

Yellen said the one thing that might prompt the central bank to raise rates earlier or faster is if hiring and wages take off in an unexpected way. So far, there is little evidence that is happening in a country with still high unemployment, and labor force participation at its lowest level in a quarter century.

“While we are making progress in the labor market we have not achieved our goal,” Yellen told the committee. “There have been substantial headwinds holding the recovery back ... Until they are completely gone it calls for an accommodative monetary policy.”

Wage increases “have been nonexistent,” she said. “We have seen a steady shift of national income from labor to capital, and there is room for wage gains before we are worried” about inflation.

U.S. stock markets dipped after the release of Yellen's testimony and the accompanying report, as investors assessed whether her comments about specific stock sectors were a warning shot akin to former Fed Chair Alan Greenspan's remarks about irrational exuberance or a footnote in an assessment that sees the U.S. economy generally making progress.

Cornerstone Macro's Roberto Perli said it was significant that Yellen's testimony was not as pointed regarding stock values as the written Fed report.

“I don't see Yellen or the Fed changing their mind anytime soon,” about the path of interest rates, currently expected to be increased in the middle of next year, Perli said. He called the observation about stock values a “rhetorical side note.”

Fed relatively upbeat

Yellen described an economy that continues to generate jobs and relatively steady growth. Yet Fed policymakers currently expect their preferred measure of inflation to stand at between 1.5 percent and 1.75 percent for 2014, short of the central bank's 2 percent target.

Fed chiefs report to Congress twice a year on monetary policy, and the hearing on Tuesday was Yellen's second such appearance. Her first turned into a marathon grilling.

This one was shorter with few sharp exchanges.

One exception: Senators who feel the Fed has not done enough to fix leftover issues from the financial crisis, such as how to handle banks considered too big to fail.

Massachusetts Senator Elizabeth Warren, a Democrat, pressed Yellen on whether the Fed is doing enough to make banks like JP Morgan develop plans that would allow for an orderly bankruptcy without taxpayer support.

Those resolution plans, Yellen said, number in the tens of thousands of pages and are “complex ... We need to give these firms feedback” to fine tune their plans.   

 

You May Like

Reports of Mass Murder on Mediterranean Smuggler’s Boat

Boat sailed from Libya with 750 migrants aboard and arrived in Italy with 569 More

Video New Thailand Hotline Targets Misbehaving Monks

Officials say move aims to restore country’s image of Buddhism, tarnished by recent high profile scandals such as opulent lifestyle, drug and alcohol abuse, as well as child sex abuse More

Study: Dust from Sahara Helped Form Bahama Islands

What does the Sahara have in common with a Caribbean island? Quite a lot, researchers say More

Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Astronauts Train in Underwater Labi
X
George Putic
July 25, 2014 7:25 PM
In the world’s only underwater laboratory, four U.S. astronauts train for a planned visit to an asteroid. The lab - called Aquarius- is located five kilometers off Key Largo, in southern Florida. Living in close quarters and making excursions only into the surrounding ocean, they try to simulate the daily routine of a crew that will someday travel to collect samples of a rock orbiting far away from earth. VOA’s George Putic has more.
Video

Video Astronauts Train in Underwater Lab

In the world’s only underwater laboratory, four U.S. astronauts train for a planned visit to an asteroid. The lab - called Aquarius- is located five kilometers off Key Largo, in southern Florida. Living in close quarters and making excursions only into the surrounding ocean, they try to simulate the daily routine of a crew that will someday travel to collect samples of a rock orbiting far away from earth. VOA’s George Putic has more.
Video

Video Not Even Monks Spared From Thailand’s Junta-Backed Morality Push

With Thailand’s military government firmly in control after May’s bloodless coup, authorities are carrying out plans they say are aimed at restoring discipline, morality and patriotism to all Thais. The measures include a crackdown on illegal gambling, education reforms to promote students’ moral development, and a new 24-hour phone hotline for citizens to report misbehaving monks. Steve Sandford reports from Bangkok.
Video

Video Virtual Program Teaches Farming Skills

In a fast-changing world beset by unpredictable climate conditions, farmers cannot afford to ignore new technology. Researchers in Australia are developing an online virtual world program to share information about climate change and more sustainable farming techniques for sugar cane growers. As VOA's Zlatica Hoke reports, the idea is to create a wider support network for farmers.
Video

Video Airline Expert: Missile will Show Signature on Debris

The debris field from Malaysia Airlines Flight 17 is spread over a 21-kilometer radius in eastern Ukraine. It is expected to take investigators months to sort through the airplane pieces to learn about the missile that brought down the jetliner and who fired it. VOAs Carolyn Presutti explains how this work will be done.
Video

Video Treatment for Childhood Epilepsy Heats up Medical Marijuana Debate

In the United States, marijuana is classed as an illegal drug by the federal government. But nearly half the states have legalized it, to some degree. Proponents say some strains of marijuana might have exceptional health benefits, for treating pain or inflammation in chronic conditions such as cancer, multiple sclerosis and epilepsy. Shelley Schlender reports on a strain of medical marijuana developed in Colorado that is reputed to reduce seizures in childhood epilepsy
Video

Video Airbus Adds Metal 3D Printed Parts to New Jets

By the end of this year, European aircraft manufacturing consortium Airbus plans to deliver the first of its new, extra-wide-body passenger jets, the A350-XWB. Among other technological innovations, the new plane will also incorporate metal parts made in a 3-D printer. VOA's George Putic has more.
Video

Video AIDS Conference Welcomes Exciting Developments in HIV Treatment, Prevention

Significant strides have been made in recent years toward the treatment and prevention of HIV, the virus that causes AIDS. This year, at the International AIDS Conference, the AIDS community welcomed progress on a new pill that may prevent transmission of the deadly virus. VOA’s Anita Powell reports from Melbourne, Australia.
Video

Video IAEA: Iran Turns its Enriched Uranium Into Less Harmful Form

Iran has converted its stockpiles of enriched uranium into a less dangerous form that is more difficult to use for nuclear weapons, according to the United Nations’ Atomic Energy Agency. The move complies with an interim deal reached with Western powers on Iran's nuclear program last year, in exchange for easing of sanctions. Henry Ridgwell reports for VOA from London.

AppleAndroid

World Currencies

EUR
USD
0.7305
JPY
USD
101.53
GBP
USD
0.5830
CAD
USD
1.0656
INR
USD
60.075

Rates may not be current.