I BET OBUMMA LOVES THIS WOMAN , AND HE WAIT AND SEE ATTITUDE, JUST LIKE OBUMMA'S FOREIGN POLICY (IF ONE EXISTS) JANET'S FED POLICY IS SIMPLY DO NOTHING...(LET'S WAIT TO LEAD TILL WE SEE WHICH WAY THE PARADE IS GOING EXCEPT THE FED IS NOW THE WHOLE MARKET...
JACKSON
HOLE, Wyo. — Janet L. Yellen, the Federal Reserve chairwoman, said on
Friday that the economy was improving but that the Fed was awaiting more
evidence about the health of labor markets before deciding when to
start raising interest rates.
Ms.
Yellen’s first keynote speech at the annual conference here in the
shadow of the Grand Tetons was mostly an extended explanation of the
reasons for the Fed’s caution, and an effort to buy time for the Fed to
deliberate. She emphasized her view that no single factor, including
inflation, could be used to judge the recovery.
“While
these assessments have always been imprecise and subject to revision,
the task has become especially challenging in the aftermath of the Great
Recession,” she said, both because of the downturn’s “nearly
unprecedented” depth and because of simultaneous changes in the economy
separate from the ups and downs of the business cycle, including the
aging of the work force.
Ms.
Yellen broke little new ground in her speech. She reiterated the Fed’s
basic guidance after its July meeting that holding short-term interest
rates near zero remains necessary and useful to increase employment. She
said the gap between current conditions and a return to full health was
still “significant.”
Photo
Janet L. Yellen, the Fed
chairwoman, speaks with Ady Barkan, a lawyer with the Center for Popular
Democracy, which held a demonstration at the conference.Credit
John Locher/Associated Press
Acknowledging
the uncertainty surrounding this assessment, Ms. Yellen added that the
Fed was prepared to adjust its stance as the economic evidence became
clearer, either moving more quickly to raise rates or holding steady for
even longer. She said the Fed expected to end the expansion of its bond
holdings in October.
Investors
generally expect the Fed to start raising interest rates in the summer
of 2015, or slightly later, based on asset prices tied to the level of
future rates. John Williams, the president of the Federal Reserve Bank
of San Francisco and a prominent centrist, told CNBC on Friday that was
still a “reasonable guess.”
Another
centrist, Dennis P. Lockhart, president of the Federal Reserve Bank of
Atlanta, said in an interview on Friday that Ms. Yellen’s speech “did
not break a lot of new ground,” because the Fed’s trajectory depended on
the economy. “I’m still someone who thinks midyear is the most likely
timing,” Mr. Lockhart said.
Some
analysts, however, viewed Ms. Yellen’s speech — along with the minutes
of the Fed’s July meeting, released on Wednesday — as evidence that the
Fed had become a little more likely to raise rates earlier, if the
economy kept gaining strength.
“We
do not believe she has changed her core views,” Michael Gapen, director
of United States economic research at Barclays, wrote on Friday in a
note to clients after Ms. Yellen’s speech, “but see the change in tone
as a normal evolution based on the fact that the Fed is closer to
achieving its dual mandate than at any point in the recovery and has
found itself at this stage faster than expected.”
Ms.
Yellen’s audience on Friday included several internal critics of the
stimulus campaign, including her host, Esther George, the president of
the Federal Reserve Bank of Kansas City, which sponsors the annual
conference, and Charles I. Plosser, president of the Federal Reserve
Bank of Philadelphia, who dissented at the last meeting of the Fed’s
policy-making committee. Both argue that the Fed has neared the limits
of its ability to improve the health of the economy and that persisting
in its efforts could loosen the central bank’s control over price
inflation.
Ms.
Yellen’s optimism that Fed policy can increase employment and wages is
also challenged by a growing body of economic literature contending that
the decline in the share of the working-age population in jobs stems
largely from factors that predate the recession and cannot be addressed
by continuing to hold down interest rates.
The
economists Stephen J. Davis, of the University of Chicago, and John C.
Haltiwanger, of the University of Maryland, argued in a paper presented
on Friday at the conference that employment levels had declined because the labor market has stagnated in recent decades. Fewer people are leaving or losing jobs, and fewer are taking new ones.
“These
results,” they wrote, “suggest the U.S. economy faced serious
impediments to high employment rates well before the Great Recession,
and that sustained high employment is unlikely to return without
restoring labor market fluidity.”
Photo
Esther George, president of the Federal Reserve Bank of Kansas City, wants the Fed to pull back from its stimulus efforts.Credit
Kansas City Federal Reserve, via Reuters
Ms.
Yellen noted their work in her speech as part of a broad survey of all
the things the Fed does not know about the state of the economy. The
most important uncertainty, she said, is “just how far the economy now
stands from the attainment of its maximum employment goal.”
She
said this unusually murky situation required the Fed to consider a
broad range of economic indicators, and to make “difficult judgments” in
the absence of clear knowledge. The remarks amounted to a rejection of
legislation proposed by House Republicans to require the Fed to make
policy according to a firm set of rules.
“Monetary
policy ultimately must be conducted in a pragmatic manner that relies
not on any particular indicator or model,” Ms. Yellen said.
She
also sought to play down the importance of inflation as an indicator.
Inflation remains below the 2 percent annual pace sought by the Fed, but
Ms. Yellen said this should not be seen as clear evidence that slack
remains in labor markets. At the same time, she warned that a rising
inflation rate, by itself, would not clearly indicate that the Fed had
reached the limits of its stimulus campaign.
“Tightening
monetary policy as soon as inflation moves back toward 2 percent might,
in this case, prevent labor markets from recovering fully,” she said.
A
small group of demonstrators made the trek to the remote resort hotel
in the middle of Grand Teton National Park to urge Fed officials to
continue the stimulus campaign. They formed a receiving line for policy
makers in the lobby outside the conference, dressed in green T-shirts
emblazoned: “What Recovery?”
“The
Federal Reserve decides how many of us will remain unemployed and
whether our wages will go up or stay low,” said Reuben Eckels, the
pastor of a church in Wichita, Kan. “They need to hear voices from
everyday people.”
The demonstration was organized by the Center for Popular Democracy,
a nonprofit advocacy group that has generally focused its campaigns on
microeconomic issues like the minimum wage and sick days. Ady Barkan, a
lawyer with the group, said it had decided there was a need to focus on
the big picture, too.
Mr.
Barkan said Ms. Yellen briefly engaged with the demonstrators as she
arrived at the conference on Thursday. “She said, ‘We understand the
issues you’re talking about and we’re doing everything we can,’ ” he
said.
The
demonstrators also spent two hours speaking with Ms. George on Thursday
and said she told them the Fed needed to pull back soon.
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