How Janet Yellen Is Looking at the Economy

The new Fed chair pledged continuity with her predecessor at her first press conference.

Federal Reserve Board Chair Janet Yellen arrives at a news conference March 19, 2014 at the Federal Reserve Board in Washington, DC.
National Journal
Catherine Hollander
Catherine Hollander
March 19, 2014, 2:11 p.m.

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.

What We're Following See More »
ON GUN RIGHTS
Trump Jr. Meeting with GOP Members
3 hours ago
THE LATEST
FLOPPY DISKS
US Nukes Rely on Decades-Old Tech
4 hours ago
THE DETAILS
‘NO BASIS IN LAW’
Eleven States Sue Administration Over Transgender Bathroom Access
6 hours ago
THE LATEST

The great restroom war of 2016 continues apace, as eleven states have sued the Obama administration in federal court, claiming its federal guidance on how schools should accommodate transgender students "has no basis in law." "The lawsuit was filed in the U.S. District Court for the Northern District of Texas on behalf of Alabama, Arizona, Georgia, Louisiana, Maine, Oklahoma, Tennessee, Texas, Utah, West Virginia and Wisconsin. The lawsuit argues that the federal government has worked to turn workplaces and schools 'into laboratories for a massive social experiment.'"

Source:
NEXT STOP: THE FLOOR
Puerto Rico Debt Bill Passes House Committee
6 hours ago
THE LATEST

By a 29-10 vote, the House Natural Resources Committee today passed the bill to allow Puerto Rico to restructure its $70 billion in debt. The legislation "would establish an oversight board to help the commonwealth restructure its un-payable debt and craft an economic recovery plan."

Source:
WITHIN 15 DAYS OF NOMINATION
Wyden Bill Would Make Nominees’ Tax Disclosures Mandatory
6 hours ago
THE DETAILS

"Though every major party nominee since 1976 has released his tax returns while running for president, the practice has never been required by law. Sen. Ron Wyden (D-OR) wants to change that. The senior Democrat on the Senate Finance Committee, which handles tax issues, introduced a bill on Wednesday that would force presidential candidates to release their most recent tax returns. The Presidential Tax Transparency Act, as the bill is called, would require candidates to make their latest three years of tax returns public no later than 15 days after becoming the nominee."

Source:
×