TribLIVE

| Business


 
Larger text Larger text Smaller text Smaller text | Order Photo Reprints

Yellen to keep borrowing rates low

On the Grid

From the shale fields to the cooling towers, Trib Total Media covers the energy industry in Western Pennsylvania and beyond. For the latest news and views on gas, coal, electricity and more, check out On the Grid today.

By The Associated Press
Thursday, May 8, 2014, 12:01 a.m.
 

WASHINGTON — Federal Reserve Chair Janet Yellen said Wednesday that the economy is improving but noted that the job market remains “far from satisfactory” and inflation is still below the Fed's target rate.

Speaking to Congress' Joint Economic Committee, Yellen said that as a result, she expects low borrowing rates will continue to be needed for a “considerable time.”

Yellen's comments echo earlier signals that the Fed has no intention of acting soon to raise its key target for short-term interest rates even though the job market has strengthened and economic growth is poised to rebound this year. The Fed has kept short-term rates at a record low near zero since December 2008.

At the same time, Yellen cautioned that geopolitical tensions, a renewal of financial stress in emerging markets and a faltering housing recovery pose potential threats.

In response to a question, Yellen described rising income disparities in the United States as a “very worrisome trend” that could undercut economic stability and democratic principles. But she cautioned that “it's hard to get clear evidence” that pay or wealth disparities have slowed economic growth.

Sen. Roger Wicker, R-Mississippi, argued that the Fed's policies have helped widen the wealth gap in the United States: The Fed-engineered low rates, intended to fuel the economy, have boosted stock prices and wealth for the richest Americans, Wicker contended.

Yellen countered that low rates had strengthened overall economic growth and helped home prices recover from the housing bust, thereby helping ordinary households.

Rep. Kevin Brady, R-Texas, the committee chairman, pressed Yellen to specify when the Fed might start raising short-term rates and how it will act to pare its record holdings of Treasury and mortgage bonds.

Yellen said she couldn't give a date. But she said the Fed expects to begin raising rates when it sees enough progress in restoring full employment and when inflation has returned to its target of 2 percent.

She pointed to the Fed's latest quarterly economic forecasts, which showed that most members expect the Fed to begin raising short-term rates in 2015 or 2016.

Yellen noted that even when the Fed's bond purchases end, it intends to maintain its high level of holdings and will begin to reduce them only when the economy can withstand the pullback. The Fed's record investment portfolio exceeds $4 trillion.

But Yellen stressed that the Fed wants to avoid past mistakes of keeping its policies loose for too long and thereby fueling inflation. She noted the prolonged bout of high inflation of the 1970s.

“The lessons of that period are very real to all of us, and none of us want to make that mistake again,” Yellen said.

 

 
 


Show commenting policy

Most-Read Business Headlines

  1. Bond mutual funds continue to carry their weight
  2. Faulty air bags in 30M vehicles
  3. Amazon investors’ patience wears thin
  4. Toyota Yaris adds French flair for ’15
  5. Mini goes mainstream
  6. Motoring Q&A: ‘Check engine’ light doesn’t reset itself
  7. Sell-off reins in complacency
  8. Stocks rise broadly on earnings; Amazon sinks
  9. PPG Industries to buy Westmoreland Supply paint store chain
  10. High pollution levels found near Ohio gas wells
  11. Amid struggles, top fiscal executive to leave EDMC
Subscribe today! Click here for our subscription offers.