Yellen Amplifies View on Need for Low Rates
Fed's Help Required as Economy and Job Market Far From Healthy
Federal Reserve Chairwoman Janet Yellen, speaking in Chicago, said, "The existence of such a large pool of 'partly unemployed' workers is a sign that labor conditions are worse than indicated by the unemployment rate." Reuters
CHICAGO—Federal Reserve Chairwoman Janet Yellen offered spirited new assurances that the Fed won't quickly back away from its low interest rate policies, describing in unusually personal terms for a central banker why she believes the economy needs these policies to support a still-weak job market.
"While there has been steady progress, there is also no doubt that the economy and the job market are not back to normal health," Ms. Yellen said in a speech at a community reinvestment conference here. "The recovery still feels like a recession to many Americans, and it also looks that way in some economic statistics."
Her comments were striking because they came less than two weeks after a Fed policy meeting where officials discussed the path to rate increases. Some investors took Ms. Yellen's comments after the meeting to mean rate increases could come sooner than expected. Her latest remarks pushed back on that idea.
"One reason why I believe it is appropriate for the Federal Reserve to continue to provide substantial help to the labor market, without adding to the risks of inflation, is because of the evidence I see that there remains considerable slack in the economy and the labor market," Ms. Yellen said.
Ms. Yellen has often said that she tries to look beyond statistics in her work to note the effect of Fed policies on actual people, an approach that was drilled into her by her mentor, the late economist James Tobin, during her Ph.D. studies at Yale.
While her predecessors at the Fed, including former chairmen Ben Bernanke and Alan Greenspan, tended to focus their public comments on economic theory and statistics, Ms. Yellen exhibited a personal touch in her speech—which could become a trademark of her tenure as Fed chairwoman—by coloring it with experiences of real people in Chicago who had struggled to gain full-time work.
" Jermaine Brownlee was an apprentice plumber and skilled construction worker when the recession hit, and he saw his wages drop sharply as he scrambled for odd jobs and temporary work," Ms. Yellen said of one man in the audience. "He is doing better now, but still working for a lower wage than he earned before the recession."
Ms. Yellen spoke to Mr. Brownlee and two others last week by telephone in preparation for her speech.
Ms. Yellen said several indicators suggest the labor market operates well short of its potential, including the high number of long-term jobless, the seven million Americans who are working part time and want full-time work, and slow wage growth. She also said the relatively low number of workers willing to quit their jobs compared with historical levels indicate a lingering insecurity about other employment prospects.
Stocks rose on her comments. In midafternoon, the Dow Jones Industrial Average was up 131.35 points, or 0.8%, to 16453.69.
"Yellen pulled out just about every dovish tool in the box as she highlighted that the economy needs extraordinary support for 'some time,' " said Bricklin Dwyer, an analyst at BNP Paribas. BNP.FR +0.64%
Most Fed officials indicated in March they expect to start raising short-term interest rates from near zero next year. Many investors expect that liftoff point in mid- to late-2015.
Ms. Yellen emphasized that the Fed's recent decision to reduce the amount of bonds it buys a month should not be viewed as a withdrawal of support of the economy. Rather, she said the Fed is adding support more slowly. The Fed is buying the bonds to keep long-term interest rates low to boost growth. The Fed decided in March to reduce its monthly bond buys by another $10 billion to $55 billion. It is expected to continue trimming the purchases this year and end them in the fall, barring a sharp shift in the economic outlook.
"Recent steps by the Fed to reduce the rate of new securities purchases are not a lessening of this commitment, only a judgment that recent progress in the labor market means our aid for the recovery need not grow as quickly," Ms. Yellen said.
Ms. Yellen later visited Richard J. Daley College, part of the City Colleges of Chicago system. As she toured a brightly lighted factory classroom, full of clanging equipment and sometimes flying sparks from welding demonstrations, the chairwoman spoke with students individually and in a larger group to discuss their program.
"I thought it was going to be someone that was uptight but she seems to approachable," said Rasheeda Shannon, a 38-year-old student at the college who also works full time at technical services firm Kay and Associates Inc.