Easing investor concern that interest rates would rise earlier than previously forecast, Federal Reserve Chairman Janet Yellen said Monday that the central bank’s unprecedented stimulus will be needed for “some time.”
Yellen, citing the examples of three people struggling to find work, used a speech at a Fed community development conference in Chicago to make the case for continued Fed stimulus, which has included more than five years of interest rates near zero and trillions in bond purchases.
“This extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policymakers at the Fed,” Yellen said in her remarks. Reaching the Fed’s goals “will take time,” she said.
Stocks rose as Yellen highlighted the Fed’s commitment to boost the economy and put 10.5 million unemployed Americans back to work. Share prices fell on March 19, when she said in a news conference that the Fed might start raising the benchmark interest rate above zero about six months after ending its bond-purchase program. Yellen didn’t mention a timetable Monday.
“It is an indirect pushback,” said Ward McCarthy, chief financial economist at Jefferies LLC in New York. “I don’t think she could directly contradict what she said at the news conference, so she did the next best thing, which was to paint a picture of a Fed that is going to be accommodative for a long, long time.”
Large numbers of partly unemployed workers, stagnant wages, lower labor-force participation and longer periods of joblessness show that “there remains considerable slack in the economy and the labor market,” Yellen said.
The Federal Open Market Committee has kept the benchmark interest rate near zero since December 2008 and sought to cut borrowing costs and fuel growth through bond buying that has more than quadrupled its assets to $4.23 trillion.
While policymakers have slowed the pace of their monthly asset purchases over the past three gatherings to $55 billion from $85 billion, Yellen said the central bank’s “commitment is strong” to helping sustain progress in the job market.
“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,” she said. “Earlier this month, the Fed reiterated its overall commitment to maintain extraordinary support for the recovery for some time to come.”
Yellen has focused on the labor market and the human cost of unemployment for much of her career as an academic and central bank official. After three years as Fed vice chairman, she was sworn in in February to succeed Ben Bernanke.
The Federal Open Market Committee said in a policy statement in March that rates will likely remain low for a considerable time after the bond-buying program ends. The committee said it will weigh a “wide range of information,” including labor market measures, in deciding when it will eventually begin raising rates.
Unemployment was 6.7 percent in February, up from the 6.6 percent level in January that was the lowest since October 2008. The economy added 175,000 jobs in February, more than economists projected, after the weakest two-month hiring gain in more than a year in December and January.
Yellen departed from the style of her recent predecessors by citing three individuals by name and discussing in her speech how their struggles with unemployment “tell us important things that the unemployment rate alone cannot.” Yellen spoke to them by phone, Fed spokesman Michelle Smith said.
Yellen cited Dorine Poole, who lost a claims processing job and struggled to find work after two years of unemployment. She said Jermaine Brownlee, a plumber and construction worker, “scrambled for odd jobs and temporary work” and still makes less than before the recession. Vicki Lira lost two jobs, was homeless at times, and now serves food samples part-time at a grocery store.
“They are a reminder that there are real people behind the statistics, struggling to get by and eager for the opportunity to build better lives,” Yellen said.
Information for this article was contributed by Kim Chipman and Peter Cook of Bloomberg News.
Business, Pages 23 on 04/01/2014