Citing stagnant labor conditions that she said are worse than previous recessions, Yellen made a case for the Fed’s continued active role in stimulating the economy: “This extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policy makers. The scars from the Great Recession remain, and reaching our goals will take time.”
Fox Business reported that Yellen spoke of the plights of several individuals as examples to bolster her case that prolonged accommodative policy is needed to guarantee that the labor market improves, despite the fact that many people are calling for higher interest rates to prevent price inflation.
“Although we work through financial markets, our goal is to help Main Street, not Wall Street,” Yellen said, in what Fox described as “stark populist terms.”
“We are trying to lower the costs of buying a car that can carry a worker to a new job and kids to school, and our policies are also spurring the revival of the auto industry. We are trying to help families afford things they need so that greater spending can drive job creation and even more spending, thereby strengthening the recovery,” Yellen said.
As an indication of how closely Wall Street tries to anticipate (and responds to) the Fed’s actions, when Yellen stated at a March 19 press conference that the Fed would likely end its bond purchase program this fall, and then might start raising interest rates about six months later, stock prices declined. Conversely, after Yellen announced on Monday that the Fed would continue its low-interest rate policies, stock prices rose.
“It is an indirect pushback,” Ward McCarthy, chief financial economist at Jefferies LLC in New York, told Bloomberg News. “I don’t think she could directly contradict what she said at the [March 19] press conference, so she did the next best thing, which was to paint a picture of a Fed that is going to be accommodative for a long, long time.”
Bloomberg also quoted Thomas Costerg, an economist at Standard Chartered Plc in New York, who said of Yellen’s speech: “It was dovish and Yellen-esque, but she didn’t explicitly backpedal on the six months comment so that’s a ghost that will stay in the background. She didn’t explicitly say ‘Oh, I made a mistake,’ she just stressed the other way, that we need accommodative policy for some time.”
During that March 19 speech, Yellen said that the Federal Open Market Committee (FOMC) needs “to see where the labor market is” in setting its policies. She added that if inflation “is persistently below” the central bank’s two-percent goal, “that is a very good reason to hold the funds rate at its present range for longer.”
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Photo of Federal Reserve Chair Janet Yellen: AP Images