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 »
WILL APPEAR TOGETHER TOMORROW
As Expected, Clinton Goes with Kaine
14 hours ago
THE LATEST
SO MUCH FOR THE RATINGS BUMP
Convention Ratings Same as 2012
20 hours ago
THE LATEST
8,000 DOCUMENTS
Wikileaks Releases Trove of DNC Docs
22 hours ago
THE DETAILS

"Wikileaks published more than 8,000 documents purportedly taken from the Democratic National Committee Friday, just days before the start of the party's convention in Philadelphia. The documents included briefings on off-the-record fundraisers and candid photographs."

Source:
YES, WE KAINE?
Clinton Announcing VP Pick Today
1 days ago
THE LATEST

Hillary Clinton "is widely expected to announce her choice" of vice president "in an email to supporters while on a campaign swing in Florida on Friday afternoon." The consensus: it'll be Sen. Tim Kaine of Virginia, although Sen. Cory Booker of New Jersey and Agriculture Secretary Tom Vilsack are also said to be in the running.

Source:
EARLY BUMP FOR TRUMP?
New Round of Polls Show a Tight Race
1 days ago
THE LATEST
  • A Rasmussen Reports poll shows Donald Trump ahead of Hillary Clinton, 43%-42%, the fourth week in a row he's led the poll (one of the few poll in which he's led consistently of late).
  • A Reuters/Ipsos survey shows Clinton leading 40%-36%. In a four-way race, she maintains her four-point lead, 39%-35%, with Gary Johnson and Jill Stein pulling 7% and 3%, respectively.
  • And the LA Times/USC daily tracking poll shows a dead heat, with Trump ahead by about half a percentage point.
×