Federal Reserve Chair Janet Yellen on Tuesday called the recovery in the labor market “far from complete,” emphasizing the high numbers of long-term unemployed and part-time workers.
In a marathon hearing on Capitol Hill — her first since being sworn in last week as the steward of the nation’s economy — Yellen noted the job market has made progress since the Fed began its more recent round of stimulus in late 2012. She cited the drop in the unemployment rate from 8.1 percent to 6.6 percent as an example.
But she said joblessness remains too high. She pointed out that an “unusually large fraction” of workers have been unemployed for six months or longer. She also said too many people are forced to work part time when they would prefer full-time positions.
“These observations underscore the importance of considering more than the unemployment rate when evaluating the condition of the U.S. labor market,” Yellen said.
That statement is significant because joblessness is fast approaching the threshold set by the Fed for raising its benchmark short-term interest rate. Yellen reiterated Tuesday that the central bank is likely to keep rates near zero “well past” the time that the unemployment rate reaches that 6.5 percent mark.
The Fed debated lowering the bar to 6 percent in December but eventually tabled the measure. Yellen’s comments Tuesday suggest the Fed is moving away from tying rates to a single number in favor of a broader array of indicators of labor-market health.
Yellen said she expects to continue the strategy laid out by former chairman Ben S. Bernanke for winding down the Fed’s massive bond-buying program, which was first launched during the recession to jump-start economic growth. Yellen said Tuesday that she believes the effort has been successful.
The central bank has been tapering its purchases of long-term securities by $10 billion a month since January and will probably continue in similar, measured steps until the program ends later this year. Yellen said it would take a “notable change” in the economic outlook for the Fed to pause the process and a “significant deterioration” before it would ramp bond-buying back up.
Investors have been confused in the past about the Fed’s plan for the program. Markets swung wildly last year when Bernanke seemed to hint that the Fed could scale back its bond-buying more quickly than expected. On Tuesday, House Financial Services Committee Chairman Jeb Hensarling (R-Tex.) said the Fed risks confusing markets again over its plans to increase interest rates.
“It’s one thing that the Fed says,” he said. “It’s another thing that markets may hear.”
But there was no danger of that Tuesday: The major U.S. stock indexes soared more than a percentage point as they processed Yellen’s testimony before Hensarling’s committee. She is scheduled to return to the Hill on Thursday for her second congressional appearance, before the Senate Banking Committee.
Yellen offered a generally optimistic assessment of the nation’s economic prospects, despite the past two months of disappointing job growth. Investors also had worried that recent turmoil in developing countries could throw a wrench in the Fed’s plans as stock markets around the globe reacted. Yellen acknowledged those concerns Tuesday but said they did not pose a “substantial risk” to the recovery.
“There was no new major insight in the prepared remarks from Yellen, outside of her acknowledgment that nothing has changed in the Fed’s view on the economy,” said Millan Mulraine, deputy head of research and strategy at TD Securities.
Yellen also defended the central bank’s continued use of unconventional policy tools, such as the bond-buying program and forward guidance, to stimulate the economy.
“I believe that I am a sensible central banker, and these are very unusual times for monetary policy,” she said.