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Yellen: No Rate Rise Until Economic Outlook Clears
Fed chief doesn’t say when a hike could come, after stating in May a move ‘in the coming months’ appeared likely
Federal Reserve Chairwoman Janet Yellen affirmed Monday that the central bank won’t be raising short-term interest rates until new uncertainties about the economic outlook are resolved.
Her comments, delivered at the World Affairs Council of Philadelphia, echoed conclusions investors drew Friday after the release of disappointing job market data.
Ms. Yellen and other officials still believe they will be gradually lifting rates because they expect the economy to improve. However, a rate increase at the Fed’s policy meeting next week is now effectively off the table. An increase in July is possible but has become less likely, and a September move is possible if economic data show the economy is rebounding by then.
Her comments represented a shift from less than two weeks ago, when she confidently said a strengthening economy meant the Fed likely would move rates up again in the “coming months.” She dropped that time frame reference Monday.
The Fed’s plans were sidetracked by a Labor Department report Friday, which showed employers added just 38,000 jobs in May. It could be an aberration, or a sign of a more fundamental slowdown in hiring and output. The cautious Fed leader made clear she isn’t inclined to take chances drawing a conclusion yet.
“New questions about the economic outlook have been raised by recent labor market data,” Ms. Yellen said Monday. “Is the markedly reduced pace of hiring in April and May a harbinger of a persistent slowdown in the broader economy? Or will monthly payroll gains move up toward the solid pace they maintained earlier this year and in 2015?”
She said she and her colleagues would now be “wrestling” with these and other questions.
The central bank risks overreacting to one report, said Drew Matus, an economist with UBS. “It is one thing to be data dependent,” he said, “it is another to be data point dependent.”
Fed officials like to say they don’t put too much emphasis on any one data point, but it long has been the case that the Labor Department’s monthly employment reports get extra attention from the central bank. It is one of the more comprehensive measures of economic activity produced by the government—a monthly survey of 146,000 businesses and government agencies in addition to a survey of 60,000 households.
The job market is also central to Ms. Yellen’s framework for reading the economy. The Fed has a congressional mandate to seek “full employment,” meaning as many jobs as possible without triggering inflation, and stable prices. Ms. Yellen has made it a priority to squeeze slack out of the job market, believing low inflation will start moving up to the Fed’s 2% goal as that happens.
The Fed raised short-term rates by a quarter percentage point, to between 0.25% and 0.5%, in December. In April, Fed officials set three benchmarks for another rate increase: 1) An acceleration in economic growth in the second quarter after a disappointing first quarter; 2) continued improvement in the job market; and 3) signs that inflation is picking up. The May jobs report raised questions about whether the economy is meeting the first two of those benchmarks.
Ms. Yellen and other Fed officials have emphasized since Friday’s report that they still think rates are going up gradually; they’re just not sure how gradually.
“What is certain is monetary policy is not on a preset course,” Ms. Yellen said. “The [Fed] will respond to new data and reassess risks so as to best achieve our goals.”
Ms. Yellen also said a number of “considerable and unavoidable” uncertainties could affect the economic outlook and the path of interest rates, including sluggish global growth, weak business investment, low U.S. productivity growth and uncertainty about the outlook for inflation.
“The uncertainties are sizable, and progress toward our goals and, by implication, the appropriate stance of monetary policy will depend on how these uncertainties evolve,” she said.
“Indeed, the policy path that my colleagues and I judge most likely to achieve and maintain maximum employment and price stability has evolved and will continue to evolve in response to developments that alter our economic outlook and the associated risks to that outlook,” she said.
She also said that, while Fed officials now believe the central bank’s target federal-funds rate will return to 3.25% in the long run, officials have been lowering that estimate over time and further changes were likely.
On an upbeat note, Ms. Yellen said she expects the economic expansion to continue, noting that overall the labor market’s progress has “been quite positive,” household incomes have been rising, the housing sector is strong and fiscal policy is now providing a boost to the economy, rather than a drag.
Fed officials will provide updated economic projections when they meet next week, which Ms. Yellen said could differ from their last projections issued in March.
“Speaking for myself, although the economy recently has been affected by a mix of countervailing forces, I see good reasons to expect that the positive forces supporting employment growth and higher inflation will continue to outweigh the negative ones,” she said.
http://www.wsj.com/articles/yellen-...s-questions-about-economic-outlook-1465230636
Yellen: No Rate Rise Until Economic Outlook Clears
Fed chief doesn’t say when a hike could come, after stating in May a move ‘in the coming months’ appeared likely
Federal Reserve Chairwoman Janet Yellen affirmed Monday that the central bank won’t be raising short-term interest rates until new uncertainties about the economic outlook are resolved.
Her comments, delivered at the World Affairs Council of Philadelphia, echoed conclusions investors drew Friday after the release of disappointing job market data.
Ms. Yellen and other officials still believe they will be gradually lifting rates because they expect the economy to improve. However, a rate increase at the Fed’s policy meeting next week is now effectively off the table. An increase in July is possible but has become less likely, and a September move is possible if economic data show the economy is rebounding by then.
Her comments represented a shift from less than two weeks ago, when she confidently said a strengthening economy meant the Fed likely would move rates up again in the “coming months.” She dropped that time frame reference Monday.
The Fed’s plans were sidetracked by a Labor Department report Friday, which showed employers added just 38,000 jobs in May. It could be an aberration, or a sign of a more fundamental slowdown in hiring and output. The cautious Fed leader made clear she isn’t inclined to take chances drawing a conclusion yet.
“New questions about the economic outlook have been raised by recent labor market data,” Ms. Yellen said Monday. “Is the markedly reduced pace of hiring in April and May a harbinger of a persistent slowdown in the broader economy? Or will monthly payroll gains move up toward the solid pace they maintained earlier this year and in 2015?”
She said she and her colleagues would now be “wrestling” with these and other questions.
The central bank risks overreacting to one report, said Drew Matus, an economist with UBS. “It is one thing to be data dependent,” he said, “it is another to be data point dependent.”
Fed officials like to say they don’t put too much emphasis on any one data point, but it long has been the case that the Labor Department’s monthly employment reports get extra attention from the central bank. It is one of the more comprehensive measures of economic activity produced by the government—a monthly survey of 146,000 businesses and government agencies in addition to a survey of 60,000 households.
The job market is also central to Ms. Yellen’s framework for reading the economy. The Fed has a congressional mandate to seek “full employment,” meaning as many jobs as possible without triggering inflation, and stable prices. Ms. Yellen has made it a priority to squeeze slack out of the job market, believing low inflation will start moving up to the Fed’s 2% goal as that happens.
The Fed raised short-term rates by a quarter percentage point, to between 0.25% and 0.5%, in December. In April, Fed officials set three benchmarks for another rate increase: 1) An acceleration in economic growth in the second quarter after a disappointing first quarter; 2) continued improvement in the job market; and 3) signs that inflation is picking up. The May jobs report raised questions about whether the economy is meeting the first two of those benchmarks.
Ms. Yellen and other Fed officials have emphasized since Friday’s report that they still think rates are going up gradually; they’re just not sure how gradually.
“What is certain is monetary policy is not on a preset course,” Ms. Yellen said. “The [Fed] will respond to new data and reassess risks so as to best achieve our goals.”
Ms. Yellen also said a number of “considerable and unavoidable” uncertainties could affect the economic outlook and the path of interest rates, including sluggish global growth, weak business investment, low U.S. productivity growth and uncertainty about the outlook for inflation.
“The uncertainties are sizable, and progress toward our goals and, by implication, the appropriate stance of monetary policy will depend on how these uncertainties evolve,” she said.
“Indeed, the policy path that my colleagues and I judge most likely to achieve and maintain maximum employment and price stability has evolved and will continue to evolve in response to developments that alter our economic outlook and the associated risks to that outlook,” she said.
She also said that, while Fed officials now believe the central bank’s target federal-funds rate will return to 3.25% in the long run, officials have been lowering that estimate over time and further changes were likely.
On an upbeat note, Ms. Yellen said she expects the economic expansion to continue, noting that overall the labor market’s progress has “been quite positive,” household incomes have been rising, the housing sector is strong and fiscal policy is now providing a boost to the economy, rather than a drag.
Fed officials will provide updated economic projections when they meet next week, which Ms. Yellen said could differ from their last projections issued in March.
“Speaking for myself, although the economy recently has been affected by a mix of countervailing forces, I see good reasons to expect that the positive forces supporting employment growth and higher inflation will continue to outweigh the negative ones,” she said.
http://www.wsj.com/articles/yellen-...s-questions-about-economic-outlook-1465230636
