US: Federal Reserve Chair Janet Yellen Speech

Thu Dec 03 09:00:00 CST 2015

Federal Reserve Chair Janet Yellen testifies before Joint Economic Committee, in Washington.

Janet Yellen, like she did in yesterday's speech to a private group, is stressing the strength of the economy and is offering a favorable outlook that both job growth and inflation will meet the Fed's expectations. And she's warning against waiting too long for liftoff which she says could trigger excessive risk taking and result in an abrupt rate hike that could unsettle the markets. Like yesterday, she is arguing that inflation is likely to pick up once base effects fade, that is effects tied to the prior fall in commodity prices and to low import prices. Yellen, however, is not sounding hawkish in the longer term, repeating that the FOMC, after liftoff, intends to keep the funds target below normal for some time. And also like she did yesterday, she says she is "looking forward" to the day when the Fed announces its rate hike which, barring a collapse in tomorrow's employment report, looks increasingly certain to be the December 15 & 16 FOMC meeting.

In questions and answers, Yellen, unlike she did yesterday, specifically referred to the December meeting as a "live option". Though no surprise, it will act to further cement December liftoff expectations. And, in an interesting comment on nonfarm payroll growth, she said absorbing new entrants into the labor force requires less than 100,000 per month which she noted is "quite a bit less" than 200,000 that is widely considered a solid level of monthly growth. In other comments, she cited the strong dollar as a factor behind weak exports which are holding down the nation's growth. She described general economic growth as slightly above trend though productivity has been depressed and wages have been stagnant. She noted that consumer spending is being driven by job growth and not by debt. She also repeated once again that the pace of tightening, once begun, will follow a gradual path.