US Federal Reserve Vice Chair Janet Yellen, US President Barack Obama’s nominee to lead the Fed, thinks the US central bank has “more work to do” to help an economy and a labor market that are still underperforming.
“I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy,” Yellen said in remarks prepared for delivery to the Senate Banking Committee yesterday.
Her testimony appeared aimed in part at pre-empting Republicans on the panel who are critical of the Fed’s unorthodox and aggressive monetary policy.
At the same time, her prepared remarks bolstered expectations in financial markets that the central bank would continue its easy money campaign to nurse the US economy back to health.
Yellen said the economy and the labor market were performing “far short” of their potential, while price pressures remained muted.
“Inflation has been running below the Federal Reserve’s goal of 2 percent and is expected to continue to do so for some time,” she said, according to a copy of the testimony made available on Wednesday in advance of the hearing.
Japanese stocks led a broad rally in Asia yesterday, spurred by Yellen’s comments, which suggested global asset markets could count on the Fed’s generous stimulus for some time.
European stocks also rose early yesterday, while US stock futures hit a record high following Yellen’s comments, which came after regular US trading hours on Wednesday that also saw major indices scaling all-time highs.
Yellen is widely expected by the markets to provide continuity with the ultra-easy monetary policies of US Federal Reserve Chairman Ben Bernanke, whose term expires on Jan. 31.
If confirmed by the Senate, she would be the first woman to lead the US central bank.
The committee needs to vet Yellen’s nomination before sending it to the full Senate for final consideration — the timing for action is uncertain, but the outcome appears assured.
Obama’s Democrats control 55 of the Senate’s 100 seats, which means the 67-year-old former economics professor need only win backing from five Republicans to reach the 60-vote threshold necessary to overcome Senate procedural hurdles.
Yellen’s testimony, which represents her first public remarks on Fed policy since June 2, will be scrutinized for signs of how she feels about the costs and benefits of continued bond buying.
However, analysts expect her to be very careful not to give any clues away ahead of the Fed’s next meeting on Dec. 17 and Dec. 18, although her stress on the need for stimulus reinforced expectations the central bank would not scale back its purchases until next year.
“This sentiment seems to reduce prospects for a December taper, but it doesn’t necessarily rule out a small taper beginning as soon as January if the data cooperate,” Credit Suisse economist Dana Saporta said.