Labour recovery far from being complete, cautions Fed’s Janet Yellen

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SummaryFed's Janet Yellen nodded to the recent volatility in global financial markets, but said at this stage it does 'not pose a substantial risk to the US economic outlook'.

New Federal Reserve chair Janet Yellen said on Tuesday the labour market recovery is “far from complete” despite a drop in unemployment, yet she said the US central bank expects to continue trimming policy stimulus in measured steps due to broader improvements in the economy.

In her first public comments as Fed chief, Yellen, giving a balanced testimony to a House committee, nodded to the recent volatility in global financial markets, but said at this stage it does “not pose a substantial risk to the US economic

outlook”.

She emphasised continuity in the Fed’s approach to policy, saying she strongly supports the approach driven by her predecessor, Ben Bernanke.

While the unemployment rate has fallen by 1.5 percentage points since the latest bond-buying programme began in September 2012, at 6.6% the rate remains “well above levels” the Fed sees as consistent with maximum sustainable employment, Yellen said. “(T)he recovery in the labour market is far from complete,” she said, according to prepared remarks to the Republican-controlled House Financial Services Committee.

Encouraged by momentum in the economy last year, the Fed has trimmed asset purchases twice since December; it now buys $65 billion in Treasuries and mortgage bonds each month, to keep borrowing costs low and encourage investment and hiring.

Yellen said the Fed will “likely reduce the pace of asset purchases in further measured steps at future meetings” if economic data broadly supports policymakers’ expectation of improved labour markets and a rise in inflation.

She said the purchases are not on a pre-set course, repeating the Fed’s policy line.

Noting inflation remains below the Fed’s 2% target, Yellen said “the recent softness reflects factors that seem likely to prove transitory, including falling prices for crude oil and declines in non-oil import prices”.

The Fed will not let inflation run “persistently above or below” its 2% goal, she added. Yellen, the first woman to chair the Fed in its 100-year history, testifies to the Democrat-controlled Senate Banking Committee on Thursday.

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