Yellen to keep borrowing rates low
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
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.