Don't look for daylight between Janet Yellen and her predecessor Ben Bernanke, the new Federal Reserve Board chair said Wednesday.
"I think we are committed to exactly the same set of goals," Yellen told reporters at a press conference following the Fed's latest policy announcement. "I think he had a very good agenda and it's one I shared. It's why I came to Washington to be vice chair and it's the agenda I expect to continue pursuing," she said. Wednesday was the first meeting and press conference with Yellen as the central bank's chair.
Still, Yellen is charting a fresh course for the central bank. It's not one that Bernanke wouldn't have taken, necessarily, but Yellen faces different challenges as she oversees the unwinding of the Fed's crisis-era balance sheet and the eventual raising of interest rates. The Bernanke Fed said in December 2012 that it would keep interest rates low at least until the unemployment rate reached 6.5 percent, so long as inflation wasn't straying too far from its long-run 2 percent target. (At the time the announcement was made, unemployment was 7.9 percent.) On Wednesday, with unemployment close to that threshold at 6.7 percent, the Fed scrapped that guidance altogether and pledged to look at a "wide range of information" when deciding to raise its benchmark interest rate, known as the federal funds rate.
"In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress—both realized and expected—toward its objectives of maximum employment and 2 percent inflation," the Fed's policy-setting group, the Federal Open Market Committee, said in a statement following a two-day meeting. "This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments."
Yellen outlined at the press conference which labor-market conditions she'd be looking at most closely. She will be watching:
The standard unemployment rate (i.e. the 6.7 percent U.S. unemployment rate).
The U-6 rate, a broader measure of unemployment that includes "marginally attached" workers.
The number of individuals working part-time on an involuntary basis.
The number of "discouraged" and "marginally attached" workers.
The share of the labor force that has been unemployed for 27 weeks or more, aka the long-term unemployed.
The labor-force participation rate, which measures the percent of the population that is part of the labor force, working or looking for work. This has fallen dramatically in recent years, partly due to the aging of the population, but also partly due to the recession. How much of the decline is due to the former and how much is due to the latter is the subject of debate among economists today.
The rate at which people are quitting their jobs (a sign of a healthy labor market), the number of job openings, and the rate at which workers are getting hired to new jobs.
"If you ask about my dashboard, the dial on virtually all of those things is moving in a direction of improvement," Yellen said.
Yellen also said the central bank was likely to raise interest rates around six months after the Fed ended a separate bond-buying program known as quantitative easing, or QE, which is aimed at bringing down longer-term interest rates. QE will now consist of $55 billion of Treasury bonds and mortgage-backed securities after seeing its third $10 billion cut since December in this policy statement, the Fed said Wednesday.
Thirteen of the Fed's 16 policymakers believe the central bank is likely to start raising the federal funds rate in 2015, the Fed had said in a separate statement following the meeting. Still, markets fell after Yellen described the six-month window, which would likely put the timing of a rate hike somewhere around next spring or summer.
The Fed's policymakers will next meet April 29-30.
This article appears in the March 20, 2014 edition of NJ Daily.