Yellen sees improved economic growth, worries about housing slowdown
Weak economic growth in the first three months of the year was mostly due to temporary factors such as the weather, and the recovery should pick up the rest of the year, Federal Reserve Chairwoman Janet L. Yellen told lawmakers Wednesday.
“With the harsh winter behind us, many recent indicators suggest that a rebound in spending and production is already under way, putting the overall economy on track for solid growth in the current quarter,” Yellen said at a hearing of the Joint Economic Committee.
But although she said labor market conditions “continued to improve,” Yellen described the job situation as “still far from satisfactory.”
The Labor Department said Friday that payrolls grew by a surprisingly strong 288,000 jobs in April and the unemployment rate dropped to 6.3%, the lowest level since September 2008.
The job growth was encouraging after the government reported last week that the economy barely grew in the first quarter, expanding at a weak 0.1% annual pace.
Yellen also warned Wednesday of risks to the recovery from the Great Recession. She was particularly concerned about a slowdown in the housing market.
Yellen said “readings on housing activity, a sector that has been recovering since 2011, have remained disappointing so far this year and will bear watching.”
Sen. Amy Klobuchar (D-Minn.), the committee’s vice chair, said the April job report was a good sign for the recovery after the slowdown caused by extreme cold and snow.
“After a long hard winter, it is good news the employment numbers are picking up,” she said.
Last week, Fed policymakers continued to reduce the central bank’s bond-buying stimulus program. The reduction, to $45 billion a month in purchases, puts the Fed on pace to end the controversial purchases by year’s end.
With the bond-buying winding down, attention has shifted to when the Fed will start to raise interest short-term interest rates, which it has held near zero since late 2008.
Rep. Kevin Brady (R-Texas), the committee chairman, said he was pleased that the Fed was ending its bond-buying effort, known as quantitative easing. But he said he was concerned that the Fed has said it plans to keep short-term rates low long after the bond purchases end.
Yellen said she expected the bond purchases to end this fall if the labor market continues to improve and inflation remains low, as Fed officials are forecasting.
But she would not be pinned down on when interest rates would start to rise.
Yellen did not repeat her comments from March that the Fed could start to hike rates as soon as six months after the end of the bond-buying program. That statement, at her first news conference after taking over as Fed chief, roiled financial markets.
Yellen told Brady on Wednesday that “there is no mechanical formula or timetable.”
But Brady was frustrated, noting that when the latest round of bond-buying began in September 2012, Fed officials were targeting a reduction in the unemployment rate to 6.5%.
He complained the Fed continually has moved the goal posts on when it would start ending its easy money policies.
“It just strikes me, over time, this ‘don’t worry, be happy’ monetary message isn’t working,” Brady said. “I believe we need more specifics and a timetable on the comprehensive exit strategy.”
Yellen said the unemployment rate was not a perfect indicator of the labor market and noted the high percentage of long-term jobless and people who are working part time because they can’t find full-time jobs.
“We need to develop a more nuanced approach to what’s going on in the labor market,” she said.
Some Republicans pressed her on an opinion column in Wednesday’s Wall Street Journal in which Fed expert Allan H. Meltzer said the central bank’s low-interest rate policies have been a factor in “goosing the stock market” to record highs at the risk of inflation.
Yellen did not agree.
“I would hardly endorse the term ‘goosing the stock market,’ she said.
Responding to criticism that the Fed’s policies have exacerbated income inequality by benefiting investors and hurting savers, Yellen said she and her colleagues have been trying to stimulate economic growth. And a growing economy helps all Americans, she said.
“There have been benefits ... in the policies we’ve pursued for Main Street as well as for those who hold equities in their portfolios,” Yellen said.
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