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Janet Yellen, vice chair of the Board of Governors of the Federal Reserve System, places her nameplate at her seat at the International Monetary Conference in Shanghai on June 3. (AP-Yonhap News) |
Janet Yellen, nominated to be the next chairman of the Federal Reserve, said the economy and labor market are performing “far short of their potential” and must improve before the Fed can begin reducing monetary stimulus.
“A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases,” Yellen, the Fed’s vice chairman, said in testimony prepared for her nomination hearing tomorrow before the Senate Banking Committee. “I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.”
The remarks show Yellen is committed to the central bank’s strategy of attempting to boost the economy and lower 7.3 percent unemployment, more than four years after the economy began to recover from the longest and deepest recession since the Great Depression. She also signaled support for capital and liquidity rules to help reduce the perception that some banks are too big to fail.
“Her approach is let’s do more QE now to get the job done faster,” said Laura Rosner, a U.S. economist at BNP Paribas SA in New York and a former researcher at the New York Fed, referring to the quantitative easing bond purchase program. “Yellen is repeating her commitment to getting the job done.”
In three pages of prepared remarks, Yellen said unemployment is “still too high, reflecting a labor market and economy performing far short of their potential” and that inflation is “expected” to remain below the Fed’s 2 percent goal. She also highlighted areas where the economy has improved, saying housing “seems to have turned a corner” and the auto industry has made an “impressive comeback,” she said.
Equity futures advanced and government bond yields decreased on Yellen’s comments, released after the close of U.S. exchanges. Standard & Poor’s 500 Index futures expiring in December climbed 0.1 percent to 1,779.6 at 5:08 p.m. in New York. The yield on the 10-year Treasury note fell 0.07 percentage point to 2.7 percent. (Bloomberg)
