Federal Reserve Chair Janet L. Yellen on Tuesday gave an upbeat assessment of the American job market. But she noted it was not fully healed and reiterated the central bank's stance that it remained "patient" in raising interest rates.
"There has been important progress toward the [Fed committee's] objective of maximum employment," Yellen said in prepared remarks to the Senate Banking Committee. "However, despite this improvement, too many Americans remain unemployed or underemployed, wage growth is still sluggish, and inflation remains well below our longer-run objective."
Yellen, who began her second year as Fed chief this month, was for the first time facing lawmakers in the new Republican-controlled Congress. And there were indications that Yellen, a Democrat, would face tough questioning on the Fed's interest-rate policy as well as its transparency and decision-making process.
"I and many of my colleagues have been calling for greater accountability and more effective disclosure for years," Sen. Richard Shelby, R-Ala., chair of the banking committee, said in his opening statement.
GOP lawmakers have long proposed an "audit the Fed" bill, something that Yellen's predecessor, Ben S. Bernanke, repeatedly pushed back against during the recession and slow recovery when aggressive Fed policies came under fire.
On Tuesday, Yellen said she "strongly opposed" such a legislation, saying that it would politicize monetary policy and bring strong political pressure on the independent central bank.
In her prepared statement, Yellen did not provide new information about when the Fed was likely to start raising its benchmark short-term interest rate, which has been held near zero since late 2008 to help boost economic activity.
In their last two meetings, in December and January, policymakers said they can be "patient" in beginning to raise the so-called federal funds rate. Yellen has said that means the Fed would not move for at least two policy meetings, making June the earliest for a rate hike.
In the Fed's last policy meeting in late January, some policymakers were concerned about waiting too long, but many others seemed inclined to move more cautiously and also were mindful of the potential negative impact on financial markets.
Before raising rates, Fed officials also want to feel confident that inflation will move toward the central bank's 2% target over the longer run. Inflation has been running unusually low in recent months, in part because of the drop in oil prices.
Although Yellen highlighted the progress in the U.S. labor market, she mentioned the still-sluggish housing market and risks to the American economy from weaker overseas growth, including slowing in China and problems in the euro area. She sounded optimistic, however, about the policy response to challenges abroad and what she described as a boost from the decline in world oil prices.
On the whole, however, Yellen did not talk Tuesday as someone who was in a hurry to raise interest rates. "We're not there yet," she said of the labor market, adding that she didn't want to act too early and risk "undermining a recovery that is just taking hold."
Yellen's testimony and exchange with senators Tuesday were part of the Fed's semi-annual report to Congress on the economy and monetary policy outlook. She will give the same prepared statement Wednesday to the House Financial Services Committee before taking questions from lawmakers.
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