WASHINGTON–In her semi-annual appearance before Congress yesterday, Federal Reserve Board Chairman Janet Yellen indicated the Fed is not poised to raise interest rates, but again hinted it might prior to year-end.
In her remarks to Congress Yellen said the economy continues to make progress toward the Fed’s objective of maximum employment, and that inflation has continued to run below the level that the Federal Open Market Committee (FOMC) judges to be most consistent over the longer run with the Federal Reserve's statutory mandate to promote maximum employment and price stability.
Overall, said Yellen, job market health is also trending in the right direction, with noticeable declines over the past year in the number of people suffering long-term unemployment and in the numbers working part time who would prefer full-time employment.
But Yellen said there also remains some “slack in labor markets,” and while there are “tentative signs that wage growth has picked up, it continues to be relatively subdued, consistent with other indications of slack. Thus, while labor market conditions have improved substantially, they are, in the FOMC's judgment, not yet consistent with maximum employment.”
Yellen testified that the available data suggest a moderate pace of GDP growth in the second quarter as certain influences dissipate; that consumer spending has picked up, and sales of motor vehicles in May and June were strong, suggesting that many households have “both the wherewithal and the confidence to purchase big-ticket items.”
But what about the big question everyone has for the Fed, the future direction of rates?
“Regarding monetary policy, the FOMC conducts policy to promote maximum employment and price stability, as required by our statutory mandate from the Congress,” said Yellen. “Given the economic situation that I just described, the Committee has judged that a high degree of monetary policy accommodation remains appropriate. Consistent with that assessment, we have continued to maintain the target range for the federal funds rate at 0 to 1/4% and have kept the Federal Reserve's holdings of longer-term securities at their current elevated level to help maintain accommodative financial conditions.
“In its most recent statement, the FOMC again noted that it judged it would be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term,” Yellen continued. “The Committee will determine the timing of the initial increase in the federal funds rate on a meeting-by-meeting basis, depending on its assessment of realized and expected progress toward its objectives of maximum employment and 2% inflation. If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy. Indeed, most participants in June projected that an increase in the federal funds target range would likely become appropriate before year-end. But let me emphasize again that these are projections based on the anticipated path of the economy, not statements of intent to raise rates at any particular time.”
Yellen’s full statement can be found here.