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 »
WORDS AND PICTURES
White House Looks Back on bin Laden Mission
6 hours ago
WHY WE CARE
NO BATTLE OVER SEATTLE
SCOTUS Won’t Hear Appeal of Minimum-Wage Law
8 hours ago
THE DETAILS

"The U.S. Supreme Court on Monday rejected a sweeping constitutional challenge to Seattle’s minimum wage law, in what could have been a test case for future legal attacks on similar measures across the country. In a one-line order, the justices declined to hear a case by the International Franchise Association and a group of Seattle franchisees, which had said in court papers that the city’s gradual wage increase to $15 discriminates against them in a way that violates the Constitution’s commerce clause."

Source:
DOWN TO THE WIRE
Sanders Looks to Right the Ship in Indiana
8 hours ago
THE LATEST

Hillary Clinton may have the Democratic nomination sewn up, but Bernie Sanders apparently isn't buying it. Buoyed by a poll showing them in a "virtual tie," Sanders is "holding three rallies on the final day before the state primary and hoping to pull off a win after a tough week of election losses and campaign layoffs." 

Source:
CONSTITUTIONAL CONVENTION IN JUNE
DC to Release Draft Constitution as Part of Statehood Push
8 hours ago
WHY WE CARE

"The New Columbia Statehood Commission—composed of five District leaders including Mayor Muriel Bowser, D.C. Council Chairman Phil Mendelson, and D.C.'s congressional delegation—voted today to publicly release a draft of a new constitution for an eventual state next Friday, at the Lincoln Cottage." It's the first step in a statehood push this year that will include a constitutional convention in June and a referendum in November.

Source:
ALZHEIMER’S OUTCRY
Will Ferrell Bails on Reagan Movie
8 hours ago
THE LATEST

Amid outcry by President Reagan's children, actor Will Ferrell has pulled out of a movie that makes light of Reagan's Alzheimer's disease. A spokesperson for Ferrell said, “The ‘Reagan’ script is one of a number of scripts that had been submitted to Will Ferrell which he had considered. While it is by no means an ‘Alzheimer’s comedy’ as has been suggested, Mr. Ferrell is not pursuing this project."

Source:
×