Today Fed Chair Janet Yellen will speak before the Senate Budget Committee in Washington for a second day on Capitol Hill as investors await more discussion about the economic and fiscal outlook for the economy.
Yesterday Yellen said that the economy has continued to recover from the steep recession of 2008 and 2009 while real gross domestic product (GDP) growth expanded to an average annual rate of about 3 1/4 percent over the second half of last year, a faster pace than in the first half and during the preceding two years.
Concerning the sluggishness in the economy during the first quarter of 2014, Yellen replied, “I see that pause as mostly reflecting transitory factors, including the effects of the unusually cold and snowy winter weather.”
Yellen struck a cautionary note about a key driver of the U.S. recovery: the housing market.
Yellen said that the readings on housing activity, a sector that has been recovering since 2011, “have remained disappointing so far this year and will bear watching.”
When speaking about the job outlook, Yellen said that conditions in the labor market have continued to improve with 200,000 job gains in employment per month over the past year but they are still far from satisfactory.
Yellen explained that the number of individuals who work part time but would prefer a full-time job are at historically high levels but the unemployment rate will continue to decline gradually, and inflation will begin to move up toward 2 percent.
Yellen explained that the Fed’s policy will continue to be guided by the evolving economic and financial situation.
“In light of the considerable degree of slack that remains in labor markets and the continuation of inflation below the Committee’s 2 percent objective, a high degree of monetary accommodation remains warranted” Yellen said.
Sounding more cautious about providing forward guidance for the Federal Reserve to begin increasing short-term interest rates with the federal funds compared to other times in the past, Yellen explained “we will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.”
“In particular, we anticipate that even after employment and inflation are near mandate-consistent levels, economic and financial conditions may, for some time, warrant keeping the target federal funds rate below levels that the Committee views as normal in the longer run” Yellen added later.