Yellen: Job Market Keeps Fed Hesitant on Interest Rate Hike

Jackson Hole-Annual Conference
John Locher/APFederal Reserve Chair Janet Yellen

JACKSON HOLE, Wyoming -- If anyone thought Janet Yellen might clarify her view of the U.S. job market in her speech here Friday, the Federal Reserve chair had a message:

The picture is still hazy.

Though the unemployment rate has steadily dropped, Yellen suggested that other gauges of the job market have become harder to assess and may reflect persistent weakness. These include many people jobless for more than six months, millions working part time who want full-time jobs and weak pay growth.

Yellen offered no clarity on the timing of the first interest rate increase, which most economists still expect by mid-2015.

Investors had been anticipating any firmer sign from Yellen about whether an improving economy might prompt the Fed to act sooner than expected to start raising rates. She instead offered further uncertainty. Damage inflicted by the Great Recession had complicated the Fed's ability to assess the U.S. job market and made it harder to determine when to adjust rates, Yellen said.

"Uncertainty is the key word," said Ian Shepherdson, chief economist at Pantheon Economics. "Yellen is not about to leap from the fence at the next [Fed] meeting."

Yellen said that for now, a broad assessment of the job market suggests that the economy still needs Fed support in the form of ultra-low rates and that inflation has yet to become a concern.

"The assessment of labor market slack is rarely simple and has been especially challenging recently," Yellen said at the conference, which the Federal Reserve Bank of Kansas City sponsors each year at a lodge beside the majestic Grand Tetons.

Yellen invoked language the Fed has used that record-low short-term rates will likely remain appropriate for a "considerable time" after the Fed stops buying bonds to keep long-term rates down. The bond buying is set to end this fall.

Yellen stressed that the Fed's rate decisions will be dictated by the economy's performance. Repeating language from an appearance before Congress in July, Yellen said that if the economy improved faster than expected or if inflation heated up, rates could rise sooner. But she also said that if the economy under-performed, the Fed could delay its first rate hike.

"Monetary policy is not on a preset course," she said.

In a separate speech, Mario Draghi, head of the European Central Bank, said the ECB was prepared to do more to boost the shaky recovery in the 18 nations that use the euro. But he said governments must coordinate efforts to reduce persistently high unemployment.

The ECB has cut rates and offered cheap loans to banks and is considering asset purchases to pump more money into Europe's economy. Draghi told the Jackson Hole conference that "we stand ready to adjust our policy stance further" if needed. But he offered no guidance on when such help might come.

In her keynote address, Yellen suggested that pay gains for U.S. workers, which have been sluggish since the recession ended five years ago, could rise faster without necessarily igniting inflation.

John Silvia, chief economist at Wells Fargo, said Yellen's remarks confirmed his view that the Fed's first rate increase will occur next June. "Yellen still wants more time to evaluate the data," he said.

Silvia also said the speech hints that the Fed is "willing to take a little more inflation to achieve their labor market goals." If inflation were to top the Fed's target of 2 percent, "I don't think they're going to panic."

This year's conference drew a pocket of demonstrators who shadowed Yellen and the other participants in the lobby of the lodge as they entered and left the invitation-only gathering. They sported green T-shirts and carried placards with the question, "What recovery?"

Related to this year's conference theme of "Re-evaluating Labor Market Dynamics," Yellen's speech addressed the difficulty the Fed faces in trying to determine the relative health of the job market given the damage caused by the 2007-2009 recession.

Paul Dales, senior U.S. economist at Capital Economics, wrote in a research note that "despite the faster-than-expected decline in the unemployment rate, Yellen does not appear to have changed her view that there is still 'significant' slack in the labor market."

Yellen's comments came two days after release of the minutes of the Fed's July 29-30 meeting. The minutes showed that officials engaged in an intensifying debate over whether to raise rates sooner than expected if the economy keeps strengthening.

Some officials, the minutes said, thought the Fed would need "to call for a relatively prompt move" to begin raising short-term rates from record lows, where it has kept them since the financial crisis struck in 2008. Otherwise, they felt the Fed risked overshooting its targets for unemployment and inflation.

In the end, the Fed made no changes at the July meeting. It approved, 9-1, maintaining its current stance on rates. But the minutes pointed to a distinct division among officials over the timing of an increase.

That debate continued at Jackson Hole, with Fed officials expressing clashing views during a series of TV interviews.

Charles Plosser, president of the Fed's Philadelphia regional bank, said he was uncomfortable with the Fed's policy statement that it expects to keep its key short-term rate unchanged for a "considerable time" after its bond purchases end. Plosser cast the lone dissenting vote at the July meeting.

Dennis Lockhart, president of the Atlanta Fed, said in a CNBC interview Friday that he was "holding to the mid-2015" time period for the first rate hike but said this view could change if the economic data strengthens.

Nicholas Colas, chief market strategist at the investment firm ConvergEx, said Yellen's speech did nothing to change his expectation that the Fed will begin to raise rates in the second quarter of 2015.

"Janet Yellen is maintaining as much space for herself for policy flexibility as she possibly can," Colas said. "She's underlining how complex this is."

AP Economics Writers Christopher S. Rugaber and Paul Wiseman in Washington and David McHugh in Frankfurt, Germany, contributed to this report.

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wow! Finally a Fed Chairperson that admits they have no clue! Madame Chairperson, here's a few points to ponder since you are all out of touch: 1. We are at full employment, at this level companies are just desparate for bodies and under this level means companies have to employ the unemployable. Ask most companies in this country and they will tell you business is at record highs and has been the last few years. The only thing stopping expansion is lack of people willing to work. Stop the handouts and force them to work. Some will have to do like our generation did to get started-we worked 2 jobs if needed to put food on the table. 2. A huge percentage of the younger people in this country, let's say those under 35 are not employable. Most are stoned daily, feel "entitled" and will take from their hard working parents and the government forever. Especially the young males, they don't seem to start growing up until they are around 40 or so. 3. Technology has has replaced tens of millions of jobs around the world, more than it has created by far and that trend will continue. 4. The U.S. education system ranks lower and lower each year compared to most of the rest of the world. In mathematics, 29 nations and other jurisdictions outperformed the United States by a statistically significant margin, up from 23 three years ago," reports Education Week. "In science, 22 education systems scored above the U.S. average, up from 18 in 2009. Madame Chairperson, this country is broken. It will take many years to fix but in the meantime low Federal Reserve lending rates to their member banks do nothing except hurt savers, a majority of them being retired people. Just raise rate back to normal and stay out of the picture. Tell the world that the Fed will keep normal rates forever and that will add stability. Recomend that the federal and state government to more agressively take away the handouts. There's much more to fix but that's a sample of the real problems.

August 22 2014 at 11:02 AM Report abuse +1 rate up rate down Reply
1 reply to mbzmc's comment

Well being 30, I agree. Stop feeding the animals. I work 2 jobs when needed cause my dad did. Now I just work 60 at my current job as a diesel mechanic. If I need more I'll work a 20 hour piss on job. Too bad my peers are all too stoned.

August 22 2014 at 11:31 AM Report abuse +1 rate up rate down Reply
2 replies to gildersleeve9's comment

Too stoned? Dont you mean too LAZY? Being stoned and lazy are 2 different things, educate yourselves.

August 22 2014 at 11:52 AM Report abuse -4 rate up rate down

Being stoned only motivates you to eat.

August 22 2014 at 12:25 PM Report abuse +1 rate up rate down