Federal Reserve Chair Janet Yellen semi-annual monetary policy testimony to House Financial Services Committee, in Washington.
Chair Yellen submitted identical remarks to the Committee on Financial Services, U.S. House of Representatives, on February 25, 2015.
Turning to Q&A, Yellen again stated that the FOMC should not chain itself to any mechanical rulesuch as the Taylor Rule.
The Fed chair is not asking Congress to alter the Dodd-Frank law. She stated that this legislation has provided a road map for improving financial stability.
Regarding the issue of living wills, Yellen repeated that the Fed is taking it seriously and that the Fed has seen very meaningful steps of improvement in a number of firms. However, she also said that if living wills are not credible, then there could be additional capital requirements.
When challenged on what discussions she has with the administration, she stated that she does not discuss monetary policy. She discusses with the administration issues such as the economy, G7 and G20.
Regarding the issue of income inequality, The Fed chair stated that the Fed cannot set wages. The Fed's job is seen as trying to achieve a labor market where jobseekers can find work. Yellen sees one of the Fed's jobs is to assure a healthy labor market.
For pending policy changes, Yellen said the even when the time to hike, policy will continue to provide support to the economy. This was similar to comments yesterday. Implicitly, she continues to indicate that rate increases will be gradual. Also, she does not expect the first rate increase for at least two FOMC meetings, repeating this view from yesterday.
The Fed chair believes inflation is going to get lower before moving higher. An improving jobs market is expected to boost inflation over the medium-term. Yellen stated that a rate hike will be considered if confident that inflation and the labor market are improving. She expects faster wage growth as the labor market strengthens.
On the economy, Yellen said that we only now are getting close to full employment. She stated that she does not know what the new normal is for long-run GDP growth. She urged Congress to address the issue of entitlements.
Today's remarks on the economy and monetary policy were very similar to yesterday's comments. Key points are that first rate hike is not likely for at least two FOMC meetings and the increase is also dependent on improvement in inflation and the labor market. For judging labor market strength, wage growth likely will be a key measure. Also testimony and responses to questions closely tracked the latest FOMC statement and minutes.
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