Janet Yellen has today defended the US’s central bank’s accommodative policy, saying it still remains warranted – it’s not rushing to raise interest rates.
Giving her testimony to Congress, this is Yellen’s first opportunity to speak following April’s improved jobs figures. Dismissing concerns over growth stangation in the first quarter – which, she said, were weather induced, she stuck predominantly to the script.
The first rate hike from the Fed isn't expected to at least mid-2015, and even then, says Paul Ashworth, chief US economist at Capital Economics, the tightening will be "unusually gradual".
Analysts have been hoping for comment on interest rates and long-term unemployment today, and they shouldn’t feel too disappointed (although the Q&A session will likely prove more illuminating): Yellen’s said that, although conditions in the labour market have improved, they’re still “far from satisfactory” as far as the Fed's concerned.
Signalling again the U6 measure of unemployment – the one that captures all those in U3 (the headline number), plus those who are marginally attached or in part-time work because of economic reasons – she said:
Both the share of the labor force that has been unemployed for more than six months and the number of individuals who work part time but would prefer a full-time job are at historically high levels.
She was more bullish when it came to spending and production:
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.
But warned that, despite a broader recovery, the housing market needs to be kept an eye on:
One cautionary note, though, is that readings on housing activity – a sector that has been recovering since 2011 – have remained disappointing so far this year and will bear watching.
Ashworth says he doesn't share Yellen's pessimism, as the value of actual mortgage lending has started to rebound.
He agrees, however, with the Fed chair's downplaying of concerns that the extended period of ultra-low rates is posing a threat to financial stability: "While some financial intermediaries have increased their exposure to duration and credit risk recently, these increases appear modest to date, particularly at the largest banks and life insurers."
Tomorrow, Yellen will deliver part two of her testimony to the Senate Budget Committee.