The United States Federal Reserve’s ultra-easy monetary policy is appropriate given high unemployment and the headwinds facing the economy, said the central bank’s vice-chair Janet Yellen on Wednesday, as she left the door open to further action if needed.
Ms. Yellen said the economic outlook is particularly uncertain, highlighting concerns about unemployment. Still, overall, she expects the economic recovery to continue and to strengthen somewhat over time.
Defending the central bank’s expectation that it will keep benchmark interest rates near zero through at least late 2014, Ms. Yellen said guidance could shift in either direction depending on the economy’s performance.
“I consider a highly accommodative policy stance to be appropriate in present circumstances. But considerable uncertainty surrounds the outlook, and I remain prepared to adjust my policy views in response to incoming information,” Ms. Yellen said in remarks prepared for delivery to the Money Marketeers of New York University.
“In particular, further easing actions could be warranted if the recovery proceeds at a slower-than-expected pace, while a significant acceleration in the pace of recovery could call for an earlier beginning to the process of policy firming” than the central bank’s policy panel currently expects.
Ms. Yellen said while the labour market has shown signs of improvement, the economy remains far from full employment and the pace of economic growth is likely to be sufficient to lower joblessness only gradually.
While she doesn’t see evidence of a significant increase in structural unemployment – jobs that have permanently disappeared – so far, Ms. Yellen said she was concerned it could rise over time if the labour market heals too slowly.
“My concern is that individuals with such long unemployment spells could become less employable as their skills deteriorate and as they lose their connections to the labour market.”
The struggling housing sector, fiscal policy and the sluggish pace of economic growth abroad are all factors weighing on the outlook, she said.