WASHINGTON: The US economy is on track for “solid growth” in the second quarter after the winter freeze, US Federal Reserve Chair Janet Yellen said yesterday.
But with the housing industry slowing and unemployment still high, the economy still needs “a high degree of monetary accommodation,” she told a congressional committee. And, she suggested, the Ukraine crisis poses a risk to the economy, as would intensified financial stress in emerging market economies.
In mostly sunny testimony to the Joint Economic Committee of Congress, Yellen said the growth stall in the first quarter stemmed from mostly transitory factors, “including the effects of the unusually cold and snowy winter weather.”
“With the harsh winter weather behind us, many recent indicators suggest that a rebound in spending and production is already under way,” she said.
Yellen said labour market conditions have improved “appreciably,” but that they “are still far from satisfactory,” despite the pickup in hiring last month and the fall in the unemployment rate to 6.3 percent.
Repeating a concern she has voiced since becoming Fed chair in February, she pointed to the still-high levels of long-term unemployed and those forced to work part-time because full-time jobs are not available. “Many Americans who want a job are still unemployed,” she said.
She said she expects economic activity to expand “somewhat faster” this year than last, helped by less fighting in Washington over government spending, improved household wealth, and firmer global economic growth.
But she made clear that the Fed’s monetary policy — its ultra-low interest rate stance and its slow drawdown of its bond-buying stimulus — are still appropriate and that policymakers do not foresee raising interest rates until mid- or late 2015.
She pointed out that even as the taper of the quantitative easing (QE) program goes on — falling from $85bn in December to $45bn starting this month — the Fed continues to buy bonds from the market. Yellen stressed that the buying helps the economy by putting “significant” downward pressure on longer-term interest rates. And she reiterated the Fed view that inflation remains tame and is not likely to reach the Fed’s 2.0 percent target in the near future. She acknowledged that holding the benchmark federal funds rate near zero since the end of 2008, and injecting liquidity into the economy via the QE programme, has helped push up the prices of assets like stocks and real estate. But she turned back concerns of a bubble in markets, arguing that valuations for shares and homes “remain within historical norms.” She also noted that the banking system, which nearly imploded in the 2008 financial crisis, was much stronger now after rules on capital ratios were toughened. AFP