Janet Yellen says US jobs market still weak
United States Federal Reserve Chair Janet Yellen speaks at the 2014 National Interagency Community Reinvestment Conference in Chicago, March 31, 2014. REUTERS/John Gress (UNITED STATES - Tags: POLITICS BUSINESS)©Reuters
Janet Yellen speaking at the National Interagency Community Reinvestment Conference in Chicago
Janet Yellen said there was still considerable slack in the US economy and labour market, implying the Federal Reserve would continue a highly stimulative monetary policy for the foreseeable future.
In remarks at a communities conference in Chicago on Monday morning, the Fed chairwoman gave a list of reasons to believe the economy and labour market were “not back to normal health”.
She said extraordinary policy was “still needed and will be for some time to come”.
Her comments may ease market nerves after a recent Fed meeting and press conference that seemed to hint at interest rate rises earlier in 2015 than previously thought.
Some recent analysis suggests the US economy is starting to run out of spare capacity. In that case, highly stimulative monetary policy could start to push up wages and inflation. But Ms Yellen said she thought such analysis was wrong.
Ms Yellen said there were 7m people working part-time who would like a full-time job, that companies were not hiring aggressively and workers were reluctant to quit jobs, that wage growth has been weak, and cited the fact that long-term unemployed workers had similar occupations and levels of education to the short-term unemployed.
“This fact gives me hope that a significant share of the long-term unemployed will ultimately benefit from a stronger labour market,” she said.
Ms Yellen also argued that a significant chunk of the decline in labour force participation – which is down from 66 per cent of the working-age population before the financial crisis to 63 per cent afterwards – was due to lack of demand in the economy.
Although the population is ageing, Ms Yellen said that “some ‘retirements’ are not voluntary, and some of these workers may rejoin the labour force in a stronger economy”.
“Based on the evidence, my own view is that a significant amount of the decline in participation during the recovery is due to slack, and another sign that help from the Fed can still be effective.”
In a notable difference from speeches by her predecessor, Ben Bernanke, Ms Yellen sought to make her comments personal and concrete rather than just abstract economics.
She introduced three people – Dorine Poole, Jermaine Brownlee and Vicki Lira – who had lost jobs in the recession and struggled to find work since. Ms Poole suffered long-term unemployment, Mr Brownlee has experienced a large fall in wages, and Ms Lira is working part-time but wants more hours.
“Recent steps by the Fed to reduce the rate of new securities purchases are not a lessening of [our] commitment, only a judgment that recent progress in the labour market means our aid for the recovery need not grow as quickly,” Ms Yellen said.
“This commitment is strong, and I believe the Fed’s policies will continue to help sustain progress in the job market.”