Fed will keep cutting support
WASHINGTON — Federal Reserve Chair Janet Yellen says 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 today that she expects a “great deal of continuity” with her predecessor, Ben 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 fuel further growth.
Yellen’s remarks, prepared for a House committee she will address today, signal that the Fed will keep its key short-term rate near zero for a prolonged period. That message could be a reassuring one for investors.
In her remarks, Yellen said the Fed is monitoring volatility in global markets but doesn’t think it poses a serious risk here.
“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.”
Yellen, the first woman to lead the central bank in its 100 years, is delivering the Fed’s twice-a-year report to Congress 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.
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 in more than five years. Still, in her testimony, Yellen said the unemployment rate remained “well above levels” that Fed officials think are consistent with its goal of maximum employment.
“Those out of a job for more than six months continue to make up an unusually large fraction of the unemployed,” she said.
