Podcast Center
Video Center
Webcasts
Resource Center
Events
November 14, 2013 at 08:49 AM
While the economy “is significantly stronger and continues to improve” since the 2008 financial crisis, the Fed plans to continue its asset purchase program known as quantitative easing as “the benefits exceed the costs,” but the program “cannot continue forever,” Janet Yellen, vice chairwoman of the Federal Reserve Board, said Thursday during her confirmation hearing before the Senate Banking Committee.
Yellen, who’s widely expected to replace current Fed Chairman Ben Bernanke, said that the private sector has created 7.8 million jobs since the postcrisis low for employment in 2010. Housing, she said, “which was at the center of the crisis, seems to have turned a corner—with construction, home prices and sales up significantly.” The auto industry, too, “has made an impressive comeback, with domestic production and sales back to near their precrisis levels.”
While the nation’s economy has “made good progress,” Yellen said, “we have farther to go to regain the ground lost in the crisis and the recession.” Unemployment, which is down from a peak of 10% and was 7.3% in October, “is still too high, reflecting a labor market and economy performing far short of their potential.”
Unemployment remains high, Yellen said, with 36% of those who are unemployed having been out of a job for more than six months.
At the same time, Yellen said, inflation has been running below the Federal Reserve’s goal of 2% “and is expected to continue to do so for some time.”
When asked during her testimony if there were dangers in tapering asset purchases too early, Yellen said that there were “dangers” in ending the program too early as well as in “continuing it too long.”
Said Yellen: “It’s important not to remove support when the economy is fragile.”
The Federal Reserve, she said, is using its “monetary policy tools to promote a more robust recovery. A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases. I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.”
Michael Hanson, senior U.S. economist for Bank of America Merrill Lynch, noted in his Thursday Economic Watch report that Yellen’s aforementioned comment on reducing “monetary accommodation” typically has meant rate hikes in official Fed communication, while reducing “reliance on unconventional tools” likely refers to the eventual reduction in the size of the Fed’s balance sheet rather than tapering.
