Federal Reserve Chair Janet Yellen made it plain today that even though more than five years have passed since the financial crash the economy still needs the central bank's zero interest rate policy because unemployment remains too high and inflation is too low.
“A high degree of monetary accommodation remains warranted,” Ms Yellen said today in her appearance before the Joint Economic Committee of Congress. “Many Americans who want a job are still unemployed,” and inflation is below the central bank’s 2 percent target, she stated.
In her prepared statement Ms Yellen said that the "pause" in first quarter growth mostly reflected "transitory factors, including the effects of the unusually cold and snowy winter weather."
Under questioning by committee members Ms Yellen specified the excessive number of long-term unemployed as one of the markers that the central bank watches.
Ms Yellen cited the 6.3 percent unemployment rate and the "stable" labor force participation rate as evidence of improvement in the labor market, without noting that the 0.4 percent drop in the unemployment rate in April was entirely due to people giving up the job search and that the participation rate of 62.8 percent is a 35 year low.
When questioned Ms Yellen refused to elaborate was to when the benchmark Fed Funds interest rate might rise.
“There is no mechanical formula or timetable for when that will occur,” she said. She reiterated the standard Federal Open Market Committee statement that the rate will stay near zero for a “considerable period”.
In March, Ms Yellen created quite a stir in the markets when she responded to a similar question by saying a "considerable period" might be about six months after the Fed ends its asset purchases. Ms Yellen then went out of her way in her next several public appearances to deny that the Fed had any pre-determined timeline for raising rates.
If the Fed keeps its current timetable of reducing securities purchases by $10 billion at each FOMC meeting, the program would end completely in December, putting the potential first rate hike sometime after next June.
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