Janet Yellen testifies before the Senate banking committee
Martin Crutsinger, Associated Press
7:56 AM, Nov 14, 2013
11:55 AM, Nov 14, 2013
WASHINGTON (AP) -- Janet Yellen said Thursday that the U.S. economy has regained ground lost to Great Recession but still needs the Federal Reserve's support because unemployment remains too high at 7.3 percent.
Yellen made those comments in testimony to the Senate Banking Committee, which is considering her nomination to be the next chairman of the Federal Reserve.
Her remarks suggest that she plans to stand by the Fed's extraordinary low interest rate policies begun under current Chairman Ben Bernanke until the economy shows further improvement.
The Fed's support of the recovery is the "surest path to returning to a more normal approach to monetary policy," said Yellen.
Yellen noted that the economy is still performing far below its potential. And she points out that inflation is running below the Fed's 2 percent target.
The Fed's policies, which include three rounds of bond purchases, are credited with helping boost economic growth and lower unemployment. But they have also driven up stock prices and stoked worries about a greater risk of inflation and asset bubbles.
Despite tough questions from senators on the future of the Fed's stimulus programs, Yellen would not specify when the central bank might begin scaling back its $85 billion-per-month in bond purchases.
She only said that Fed policymakers assess the risks and benefits of the bond purchase program each time they meet.
"The committee is looking for ... signs of growth that are strong enough to promote continued progress" in the labor market. She said "there is no set time that we will decide to reduce the pace of our purchases."
Many economists believe the Fed will keep the purchase level unchanged at its upcoming meeting in December. Many say the Fed might hold off scaling back the program until its March meeting. That would allow the Fed more time to see if the solid job gains reported in the past three months continue.
"This is a strong signal that the Fed is not going to reduce its support for the economy any time soon," said Sung Won Sohn, an economics professor at the Martin Smith School of Business at California State University.
Even with some Republican resistance, Yellen's backing by the committee and confirmation by the full Senate is viewed as all but assured.