WASHINGTON — Federal Reserve Chair Janet Yellen said Wednesday that the U.S. 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 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 said "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 said.
Yellen countered that low rates have strengthened overall economic growth and helped home prices recover from the housing bust, thereby helping ordinary households.
Yellen 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 said the share of unemployed who have been out of work for more than six months and the number of people working part time who prefer a full-time job are at historic highs.
She also said weak wage gains are a signal of a subpar job market.
Still, at last week's Fed meeting, the central bank indicated it saw signs of a strengthening economy. It approved a fourth $10 billion reduction in its monthly bond purchases to $45 billion, down from an original $85 billion. The Fed has been buying bonds to try to keep long-term rates low.
The Fed is expected to end its bond purchases by the end of the year. But even when it does, the Fed will maintain its holdings at a record level above $4 trillion and provide continued downward pressure on long-term rates.
Last week, the Fed reiterated its expectation that short-term rates would remain near zero for a "considerable time" after the bond buying program ends. Yellen repeated that Wednesday.
"Many Americans who want a job are still unemployed, inflation continues to run below (the Fed's) longer-run objectives, and work remains to further strengthen our financial system," she said.