New Federal Reserve Chair Janet Yellen to investors: Expect continuity at the Fed
Charles Dharapak, Associated Press
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 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.
After the two $10 billion cuts in December and January, the level of bond buying stands at $65 billion. 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 weakness in job growth 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 was not 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.
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.