Job market needs low rates for some time, says Yellen

Apr 01 2014, 22:31 IST
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SummaryFederal Reserve chairperson Janet Yellen made it clear on Monday that she thinks the still-subpar US job market will continue to need the help of low interest rates “for some time”.

Federal Reserve chairperson Janet Yellen made it clear on Monday that she thinks the still-subpar US job market will continue to need the help of low interest rates “for some time”.

Yellen's remarks signaled that even after the Fed phases out its monthly bond purchases later this year, it has no plans to raise a key short-term rate anytime soon. The bond purchases have been intended to keep long-term loan rates low.

Her remarks sent a reassuring message to investors, many of whom had grown anxious that the Fed might raise short-term rates by mid-2015. Their concerns were stirred last month when Yellen suggested that the Fed could start raising short-term rates six months after it halts its bond purchases, which most economists expect by year's end.

A short-term rate increase would elevate borrowing costs and could hurt stock prices. But on Monday, Yellen made clear that the Fed still thinks rates should remain low to stimulate borrowing, spending and economic growth.

“I think this extraordinary commitment is still needed and will be for some time, and I believe that view is widely held by my fellow policymakers at the Fed,” Yellen said in her first major speech since taking over the Fed's leadership in February.

Stocks, which had been up before Yellen began speaking, rose further on her remarks. Low rates tend to lead some investors to shift money into stocks and thereby raise stock prices.

Speaking to a national conference on community reinvestment in Chicago, Yellen described the US job market as being less than healthy despite steady improvement since the recession ended nearly five years ago. She says the difficulty many people are still having finding full-time work shows that low rates are still needed to encourage borrowing and spending.

In an unusual touch for a speech delivered by a Fed chief, Yellen described the personal stories of three people who had lost their jobs during the recession and struggled to find work.

“They are a reminder that there are real people behind the statistics,” Yellen said.

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