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Fed chief Yellen says interest rates will remain low

Janet Yellen said the economy is far short of full health.

Janet Yellen said the economy is far short of full health.

JACKSON HOLE, Wyo. — Federal Reserve Chair Janet Yellen said Friday that the economy was improving but that the Fed is awaiting more evidence about the health of labor markets before deciding when to start raising interest rates.

Yellen's first keynote speech at the annual conference in Jackson Hole was mostly an extended explanation of the reasons for the Fed's caution, and an effort to buy time for the Fed to deliberate. She emphasized her view that no single factor, including inflation, could be used to judge the recovery.

"While these assessments have always been imprecise and subject to revision, the task has become especially challenging in the aftermath of the Great Recession," she said, because of the recession's "nearly unprecedented" depth and simultaneous changes in the economy.

Yellen reiterated the Fed's basic guidance after its July meeting that holding short-term interest rates near zero remained necessary and useful to increase employment. She said that the gap between current conditions and a return to full health remains "significant."

Investors generally expect the Fed to start raising interest rates next summer or slightly later, based on asset prices tied to the level of future rates.

Yellen's optimism that Fed policy can increase employment and wages is also challenged by a growing body of economic literature purporting to show that the decline of employment is caused largely by factors that predate the recession, and that cannot be addressed by continuing to hold down interest rates.

Yellen also sought to play down the importance of inflation as an indicator. Inflation remains below the 2 percent annual pace targeted by the Fed, but Yellen said this should not be seen as clear evidence of slack in labor markets.

Fed chief Yellen says interest rates will remain low 08/22/14 [Last modified: Friday, August 22, 2014 8:17pm]
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