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US Fed chair signals plan to reduce support
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US Federal Reserve Chair Janet Yellen said yesterday that if the economy keeps improving, the US central bank will take “further measured steps” to reduce the support it’s providing through monthly bond purchases.
In her first public comments since taking over the top Fed job last week, Yellen said she expects a “great deal of continuity” with her predecessor, Ben Bernanke. She signaled support of his view the economy is strengthening enough to withstand a pullback in stimulus but that rates should stay low to fuel further growth.
Yellen’s remarks signal the Fed will keep its key short-term rate near zero for a prolonged period. That message could reassure investors.
In her remarks, Yellen said the Fed is monitoring volatility in global markets but doesn’t think it poses a serious risk to the US.
“Since the financial crisis and the depths of the recession, substantial progress has been made in restoring the economy to health and strengthening the financial system,” Yellen said in her testimony for the House Financial Services Committee. “Still, there is more to do.”
Yellen, the first woman to lead the central bank in its 100 years, was delivering the Fed’s twice-a-year report to Congress a week after being sworn in to succeed Bernanke. He stepped down on January 31 after eight years as chairman.
Many economists think the Fed bond buying, which totaled US$85 billion a month during 2013, will be reduced in US$10 billion increments this year until the purchases are eliminated in December.
After the two US$10 billion cuts in December and January, the level of bond buying stands at US$65 billion. The purchases of Treasury and mortgage bonds are aimed at stimulating the economy by keeping long-term borrowing rates low.
Yellen repeated the Fed’s assurances that it intends to keep its key short-term rate near zero “well past” the time the unemployment rate drops below 6.5 percent as long as inflation remains low. Many economists don’t expect short-term rates to be increased until late 2015.
The unemployment rate in January fell to 6.6 percent, the lowest point in more than five years. Still, in her testimony, Yellen said the unemployment rate remained “well above levels” Fed officials think are consistent with its goal of maximum employment. She said the job market still faces problems.
“Those out of a job for more than six months continue to make up an unusually large fraction of the unemployed,” she said. “The number of people working part time but would prefer a full-time job remains very high.”
In her testimony, she stuck closely to Bernanke’s positions. She had served on the Fed’s policy committee and worked with Bernanke in developing the central bank’s policies.
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