New Federal Reserve Chairwoman Janet L. Yellen, who took over from previous Fed chief Ben S. Bernanke at the start of the month, said yesterday that she would not, in no uncertain terms, make any surprise moves when it comes to the U.S. monetary policy. This means the U.S. central bank will continue tapering its economic stimulus initiative at its current pace, even if statistics from the employment market remain lukewarm and the job market far from healthy.
Yellen, 67, made her first public statements since being named Fed Chairwoman on Tuesday, and actually had some tense moments when communicating with Republican movers and shakers regarding the Fed’s autonomy and Wall Street regulation. She assuaged investor concerns by stressing that her policy as Fed chief will remain congruent with the policy that Bernanke had enforced when he was in charge of the central bank. According to Yellen, the Fed should be cognizant of the “unusually high” cases of protracted unemployment, as well as the “exceptionally high” share of American job seekers who are only able to work part-time.
“By a number of measures our economy is not back (on track), the labor market is not back to normal,” said Yellen as she spoke in front of the U.S. Congress’ Financial Services Committee. “There’s a great deal of slack in the labor market still.” In recent months, employment figures have failed to match up to expectations, and a number of variables, including the winter weather, have been cited as possible reasons why these jobs market stats had turned out to be tepid.
However, the Fed decided to start “tapering”, or curtailing economic stimulus in December 2013 despite these unsatisfactory jobs figures, as there was nonetheless a reduction in the percentage of unemployed Americans and some cogent growth observed in the broader economic landscape. However, the continued trend of slower job market improvement has caused some financial experts to speculate whether the Fed might put the brakes on its taper for the meantime.
Even with the job market still moving at a laggard pace, Yellen appears to have no intention, if at all, to change the Fed’s strategy. She hinted that the Fed’s next course of action may be to take “further measured steps” when tapering stimulus, if economic data is in sync with Fed policymakers’ expectations of jobs market improvement and an increase in inflation statistics. Yellen also warned pundits not to take too much stock in the recent round of employment stats.
Following Yellen’s testimony, U.S. government bond prices dropped while Wall Street rallied, as stock market indices had ticked upwards by over one percent. This was because investors did not get any “swerve” comments from Yellen, as her statements were mostly expected. According to RBC Capital Markets chief U.S. economist Thomas Porcelli, the comments make it clear that Yellen “is working from the same playbook as Bernanke.”
Currently, bond purchases are being made at the pace of $65 billion in bond purchases per month, down from the original $85 billion per month pace from September 2012 to December 2013. The next Fed Open Market Committee meeting is scheduled for March 18 to 19.