Federal Reserve Chair Janet Yellen revealed her real-world approach to policymaking Monday during her first public speech since taking over the reins of the nation’s central bank this year.
The address amounted to an impassioned argument for continuing the Fed’s unprecedented support of the American economy in the aftermath of the 2008 financial crisis. Yellen described in detail the challenges facing unemployed workers, from exhausted savings to strained marriages. She even recounted the stories of three people by name: Dorine Poole, who was discriminated against because she is unemployed; Jermaine Brownlee, who took a job making less money than he did before he was unemployed; and Vicki Lira, who is working part-time but wants more hours.
“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. Though the Fed works through financial markets, “our goal is to help Main Street, not Wall Street.”
Yellen’s speech seemed tailored to help the Fed shed the cloistered reputation it earned in the decades leading up to the financial crisis. The central bank’s top officials have made transparency and communication with the public a priority since the Great Recession, and nearly every aspect of Yellen’s event was steeped in the real economy. She delivered her speech at the conference for community organizers and developers hosted by the Chicago Federal Reserve. She toured a manufacturing program at a community college in the city’s rough South Side.
“It shows that the Fed has a concrete, on-the-ground feeling for what is happening,” said Randall Kroszner, a professor at the University of Chicago’s Booth School of Business and a former Fed governor.
And on the ground, the nation’s economic recovery often feels far from complete. Critics of Fed policy have questioned the effectiveness of its stimulus efforts and warned that years of ultralow interest rates could be sowing the seeds of future financial instability. But Yellen cited the struggles of job seekers as the catalyst for the Fed’s intervention. She noted their “courage and determination” of job seekers – and suggested that the Fed will not let them down.
“No amount of training will be enough if there are not enough jobs to fill,” she said. “The most important thing we do is to use monetary policy to promote a stronger economy.”
Yellen pointed to several economic indicators to illustrate the ongoing weakness in the job market:
- Seven million people like Vicki Lira are working part-time but would prefer full-time jobs.
- Hiring has remained weak, while the number of people who voluntarily quit their jobs is also low, suggesting workers are worried about their prospects of finding other employment.
- Wage growth has averaged only about 2 percent a year since the recession.
- Not only are large numbers of people long-term unemployed, their demographics closely match those who are more recently unemployed. That suggests they have not become totally marginalized from the labor force.
- Yellen said there have not been “clear indications” that the short-term unemployed are finding jobs more readily than the long-term unemployed. This debate has gained traction among economists lately. The short-term unemployment rate is near its pre-recession level, raising fears that the Fed may be pushing the economy too far. Yellen clearly comes down on the other side of the argument: “This fact gives me hope that a significant share of the long-term unemployed will ultimately benefit from a stronger labor market.”
- Yellen also says a “significant amount” of the shrinking of the nation’s workforce is the result of people who have given up looking for work. Some of them may officially be retired but could be enticed to work again if the recovery picked up.
“The recovery still feels like a recession to many Americas, and it looks that way in some economic statistics,” Yellen said.
The remarks were intended to reassure to the public and investors that the Fed plans to provide support for the economy “for some time.” The Fed is in the process of winding down its trillion-dollar stimulus program that was targeted at bringing down long-term interest rates. Meanwhile, it has begun laying the groundwork to raise short-term interest rates, likely some time in 2015, which would be the first hike since the central bank slashed them to zero nearly six years ago.
But Yellen tried to emphasize that even though the Fed may raise rates, they will likely remain lower than the 4 percent rate that the central bank considers normal for quite a while.
“The scars from the Great Recession remain, and reaching our goals will take time,” she said.