Fed chief Yellen urges caution on jobs despite fall in number of unemployed
New US Federal Reserve chief Janet Yellen yesterday made clear she would not abruptly change US monetary policy, saying the central bank was on track to keep reducing its stimulus even though the labour market recovery was "far from complete".
In her first public comments as chief, Yellen said the Fed would need to keep its eye on the number of long-term unemployed Americans and those working only part-time but who want a full-time job.
Yellen, addressing lawmakers on the House Financial Services Committee, emphasised continuity in the Fed's policy strategy, saying she strongly supported her predecessor's approach. Under Ben Bernanke, the Fed bought trillions of dollars worth of bonds to drive long-term borrowing costs lower in the wake of the deep 2007-2009 recession. In December, in a nod to a drop in unemployment and stronger economic growth, it started to scale back its latest asset purchase programme.
While the US unemployment rate has fallen by 1.5 percentage points since the latest bond-buying programme began in September 2012, at 6.6 per cent the rate remains "well above levels" the Fed sees as consistent with maximum sustainable employment, Yellen said. "The recovery in the labour market is far from complete," she said.
The Fed has trimmed asset purchases in each of the past two months.
Yellen said the Fed would "likely reduce the pace of asset purchases in further measured steps at future meetings" if economic data broadly supports policymakers' expectation of improved labour markets and a rise in inflation.
Yellen, in only her second week on the job after serving as the Fed's vice-chair, acknowledged the recent volatility in global financial markets, but said at this stage it did "not pose a substantial risk to the US economic outlook".
Prices for US government bonds slipped and the dollar rose against the euro as investors digested Yellen's comments. US stocks opened the day higher.