While growth has picked up, “the recovery in the labor market is far from complete,” Yellen said today in the text of remarks to the House Financial Services Committee. “I am committed to achieving both parts of our dual mandate: helping the economy return to full employment and returning inflation to 2 percent while ensuring that it does not run persistently above or below that level.”
Yellen, 67, delivered her first public remarks as Fed chair as policy makers pursue plans to gradually scale back the unprecedented bond-purchase program she helped put in place. She repeated the Fed’s outlook for further reductions in “measured steps” and that asset purchases are not on a “pre-set course.”
She spoke days after a government report showed the jobless rate unexpectedly declined almost to the Fed’s threshold for considering an increase in the benchmark interest rate, even as payrolls growth was weaker than forecast.
Yellen said the unemployment rate alone isn’t an adequate gauge of labor-market health.
“Those out of a job for more than six months continue to make up an unusually large fraction of the unemployed, and the number of people who are working part time but would prefer a full-time job remains very high,” she said. “These observations underscore the importance of considering more than the unemployment rate when evaluating the condition of the U.S. labor market.”
Yellen also said that the Fed has been “watching closely” volatility in global financial markets and that “our sense is that at this stage these developments do not pose a substantial risk to the U.S. economic outlook.”
Yellen used her testimony to praise her predecessor, Ben S. Bernanke, for helping “make our economy and financial system stronger” and said she’d continue his strategy.
“I expect a great deal of continuity in the FOMC’s approach to monetary policy,” Yellen said. She said she served on the Federal Open Market Committee “as we formulated our current policy strategy and I strongly support that strategy.”
The Fed said in December that it would start reducing the monthly pace of asset purchases, citing progress toward its goal of full employment. It announced a $10 billion reduction that month, followed by a cut of the same size in January, to $65 billion.
The central bank has said it will keep buying bonds until the outlook for the labor market has “improved substantially.”
Fed policy makers have also sought to reassure investors that while they are tapering bond purchases, they still intend to hold the Fed’s target rate near a record low.
Beginning in December 2012, the FOMC said it would keep the rate near zero “at least as long” as unemployment was above 6.5 percent. At their December 2013 meeting, it strengthened that statement, saying the rate is likely to stay near zero until “well past the time” unemployment falls below 6.5 percent, a strategy Yellen repeated today.
Unemployment in January fell to 6.6 percent, the lowest since October 2008, from 6.7 percent, a Labor Department report showed last week. Job growth in December and January was the weakest of any two-month period in the past three years.
Joblessness has fallen faster than policy makers expected. When they first announced the threshold, most of them expected a rate of 7.4 percent to 7.7 percent at the end of 2013 and 6.8 percent to 7.3 percent at the end of this year.
“They thought if the rate fell to this level you’d be seeing a lot more job growth and economic growth,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, and a former Richmond Fed economist. “The Fed is viewing the totality of data as suggesting the labor market is not as healthy as they thought it would be when we got to that 6.5 percent threshold.”
The FOMC doesn’t meet again until March 18-19. By then, it will have an additional month of economic data, including the jobs report for February.