WASHINGTON — In her first appearance before Congress as head of the Federal Reserve, Janet Yellen said the Fed will focus on returning the economy to employment while keeping an eye on whether regulatory reforms for the financial industry are working.
Yellen delivered the Fed’s semi-annual report to Congress Tuesday, saying economic recovery advancedin the latter half of 2013, with an estimated 3.5 percent growth in real Gross Domestic Product, up from 1.75 percent. Still, she says there is a lot of work ahead.
“I am committed to achieving both parts of our dual mandate: helping the economy return to full employment and returning inflation to 2 percent while ensuring that it does not run persistently above or below that level,” she told the House Financial Services Committee.
Yellen’s testified to monitor progress towards benchmarks set in The Full Employment and Balanced Growth Act of 1978, known as the Humphrey-Hawkins Act on full employment and growth in production.
Though America has seen decreasing unemployment rates in the past few months, other numbers such as the number of discouraged workers and the unemployment rates by race are distressing.
”Full employment” can be defined as a jobless rate in the range of 4 percent, according to the Center for Economic and Policy Research, a Washington think tank. Others peg it a little higher. Extremely low unemployment can fuel inflation.
On the committee, Rep. Lacy Clay, D-Mo., discussed racial disparities in joblessness, such as the African American unemployment rate being almost six points higher than the national rate of 6.6 percent – a trend that’s occurred for several years.
When asked about possible solutions, Yellen said monetary policy should not be seen as the only response to unemployment.
“I think it’s absolutely appropriate for Congress to consider other measures that you might take in order to foster the same goals,” Yellen said.
This will be especially important in the next few months as the Fed looks to decrease purchases in one of its most prominent monetary policy initiatives: the Federal Open Market Committee’s asset-purchasing program. Launched in September 2012, the program was designed to aid economic recovery until the “outlook for the labor market in context of price stability” improved.
Since then, unemployment has fallen by 1.5 percentage points and about 1.25 million jobs have been added, Yellen said. As such, in its January meeting, the Fed’s Open Market Committee decided to start cutting back on its number of purchases in a “measured and deliberate way.” However, the decision “will remain contingent on its outlook for the labor market,” according to Yellen.
“Nevertheless, the recovery in the labor market is far from complete,” she said. “The unemployment rate is still well above levels that FOMC participants estimate is consistent with maximum sustainable employment.”
Yellen pushed for strengthening the financial system, specifically through “regulatory and supervisory actions” such as the Volcker rule and other rule in to the Dodd-Frank Act.
“We will continue to monitor for emerging risks, including watching carefully to see if the regulatory reforms work as intended,” Yellen said.
Several lawmakers questioned Yellen on ramifications of the Dodd-Frank Act, including Rep. Blaine Luetkemeyer, R-Mo., who criticized the law for allegedly cutting jobs over the supposed “long term” in the interest of effects that are not apparent.
When committee Chairman Jeb Hensarling, R-Texas, questioned her stance on the law, Yellen said in these “extremely unusual” economic conditions, regulations are needed to monitor institutions that are said to “too big to fail.”