Yellen to Investors: Expect Continuity at the Fed

Yellen Testimony
Cliff Owen/APFederal Reserve Chair Janet Yellen

WASHINGTON -- Federal Reserve Chair Janet Yellen sought Tuesday to reassure investors that she will embrace the approach to interest-rate policy that her predecessor, Ben Bernanke, pursued before he stepped down as chairman last month.

Yellen told Congress that if the economy keeps improving, the Fed will take "further measured steps" to reduce the support it's providing through monthly bond purchases.

In her first public comments since taking over the top Fed job last week, Yellen said she expects a "great deal of continuity" with Bernanke. She signaled that she supports his view that the economy is strengthening enough to withstand a pullback in stimulus but that rates should stay low to further improve a still-lackluster economy.

Yellen's remarks, delivered to a House committee, suggested that the Fed will keep its key short-term rate near zero for a prolonged period.

"The recovery in the labor market is far from complete," Yellen said, an indication that the Fed is in no hurry to boost short-term rates.

Her message of continuity at the Fed was a reassuring one for investors, and it contributed to a rally on Wall Street. The Dow Jones industrial average (^DJI) was up nearly 140 points shortly after noon Eastern time.

Yellen said the Fed is monitoring volatility in global markets but doesn't think it poses a serious risk to the United States at the current time.

"Since the financial crisis and the depths of the recession,
substantial progress has been made in restoring the economy to health and strengthening the financial system," Yellen said in her testimony for the House Financial Services Committee. "Still, there is more to do."

Some Republican lawmakers expressed concern to Yellen that the Fed's extraordinary support could eventually ignite high inflation or destabilize financial markets.

The committee chairman, Jeb Hensarling, R-Texas, a critic of the Fed, said there were "clearly limits to what monetary policy can achieve." Hensarling questioned whether the Fed had sent confusing signals to investors by changing its possible timetable for future actions on interest rates.

Yellen, the first woman to lead the central bank in its 100 years, delivered the Fed's twice-a-year report before the House panel a week after being sworn in to succeed Bernanke. He stepped down Jan. 31 after eight years as chairman.

Many economists think the Fed bond buying, which totaled $85 billion a month during 2013, will be reduced in $10 billion increments this year until the purchases are eliminated in December. The purchases of Treasury and mortgage bonds are aimed at stimulating the economy by keeping long-term borrowing rates low.

Rep. Carolyn Maloney, D-N.Y., sought to have Yellen outline what developments might cause the Fed to slow or suspend its reductions in bond purchases. Maloney asked whether the weak job reports for December and January might prompt such a pause.

Yellen acknowledged that she was surprised by the sluggish job gains the past two months. But she cautioned against "jumping to conclusions." She suggested that job growth might have been held down by severe weather and wasn't necessarily a signal of a hiring slowdown. She noted that when the Fed next meets to consider interest rates on March 18-19, it will have another employment report to review.

Continued Strengthening

Yellen said the committee won't likely change its pace of bond reductions unless it sees a "notable change" in the economic outlook. The Fed is forecasting that the economy and the job market will continue to strengthen in 2014.

On bank regulation, Yellen said the Fed was committed to implementing the 2010 Dodd-Frank Act, which overhauls regulation to try to prevent a future financial crisis. But she agreed in response to questions that bank oversight that's too aggressive can keep banks from making loans that small businesses need to operate.

Yellen repeated the Fed's assurances that it intends to keep its key short-term rate near zero "well past" the time the unemployment rate drops below 6.5 percent as long as inflation remains low. Many economists don't expect short-term rates to be increased until late 2015.

The unemployment rate in January fell to 6.6 percent, the lowest point in more than five years. Still, in her testimony, Yellen said unemployment remained "well above levels" that Fed officials think are consistent with its goal of maximum employment. She said the job market still faces problems.

"Those out of a job for more than six months continue to make up an unusually large fraction of the unemployed," she said. "The number of people working part time but would prefer a full-time job remains very high."

In her testimony, she stuck closely to the positions taken by Bernanke. She said the Fed expects the economy to expand moderately this year, with unemployment continuing to fall and inflation moving up toward the Fed's 2 percent target.

Yellen's testimony comes before she has presided over her first meeting as Fed chair. That will occur March 18-19, after which she will hold her first news conference.

The Fed's three rounds of bond purchases have driven its holdings above the $4 trillion mark -- four times its level before the financial crisis struck with force in 2008.

The prospect of a continued pullback of the Fed's bond purchases has triggered concerns that many emerging market countries won't be able to withstand a withdrawal of foreign capital. Investors have yanked money from emerging economies in part because they fear that a pullback in the Fed's stimulus will send U.S. interest rates up and draw investor money from overseas in search of higher returns.

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A classic puppet. If these deplorable low rates are so good for the economy, why doe's the Fed allow banks too charge any rate the want on credit cards 31% on some, 12% too 18% on personal loans and 8.5% on secured loans, like borrowing money from the bank and securing it with a CD paying .50%. That's really helping the consumer, paying 8% to borrow your own money. What a joke. The only people that benefit from these rediculous rates are the Big Banks.

February 11 2014 at 8:10 PM Report abuse +1 rate up rate down Reply

ooooooooh yeah CONTINUITY
as in

February 11 2014 at 4:18 PM Report abuse -1 rate up rate down Reply

when can we expect an audit of The Fed?
when can we expect an end to The Fed?
when will The Fed stop printing and diluting our dollar?
when will they stop manipulating interest rates, stock prices, and gold prices?
just wondering?

February 11 2014 at 2:48 PM Report abuse -5 rate up rate down Reply
2 replies to scottee's comment

Mybe it'll happen if you hold your breath. Oh look: squirrel

February 11 2014 at 4:00 PM Report abuse +3 rate up rate down Reply

when the damn people WAKE THE F UP AND DEMAND IT.




February 11 2014 at 4:20 PM Report abuse -1 rate up rate down Reply

You want to talk about somebody looking dumb before Congress, Yellen gets the prize. A typical Obama appointee!

February 11 2014 at 1:28 PM Report abuse -1 rate up rate down Reply

This Lady seems Koo-Koo for Cocoa Puffs???? Wow, she makes Bernake look Good!

February 11 2014 at 12:10 PM Report abuse -1 rate up rate down Reply
1 reply to Kimbeltnt's comment

I bet you're just soo much smarter than her, yes? Oh look: squirrel

February 11 2014 at 12:36 PM Report abuse +2 rate up rate down Reply
2 replies to chris1011's comment

Of course! Giddyap!

February 11 2014 at 12:53 PM Report abuse -3 rate up rate down

anyone that can ADD one PLUS one and come up WITH 2 is smarter than HER.

February 11 2014 at 7:21 PM Report abuse -1 rate up rate down

Just like all the other Obama appointees, she has no idea what she is doing.

February 11 2014 at 9:20 AM Report abuse -4 rate up rate down Reply

Also on here is a piece about Seth Shostak who says that NASA/humanity will find alien intelligence by 2,040.
Seth is correct. About 12 miles North of NASA's launch pad 39B is a small swamp town called Aurantia. I investigated a sighting there in 2,008
I never would have noticed the thing hovering over my house if "they" hadn't flashed a light in my face (they followed me).
Was a I scared ? I started to throw up.
Usually these contacts are made by some hillibily, but I have an engineering degree.
Yes, what little I learned has given me a tech advantage.
But, I'll never investigate UFO sightings ever again.

February 11 2014 at 7:39 AM Report abuse -6 rate up rate down Reply