How Far Have We've Come? Janet Yellen, Her Resignation and the Current Economic Outlook
Chair Janet L. Yellen meets with the students, school administrators, local workforce leaders, and employer partners from the "Right Skills Now" job training program at Cuyahoga Community College; September 2017, Cleveland
Resignation Letter to President Trump
The Current Economic Outlook and Monetary Policy
Chair Janet L. Yellen, November 29, 2017 ... Before the Joint Economic Committee, U.S. Congress, Washington, DC
Chairman Tiberi, Ranking Member Heinrich, and members of the Committee, I appreciate the opportunity to testify before you today. I will discuss the current economic outlook and monetary policy.
The Economic Outlook
The US economy has strengthened further this year. Smoothing through the volatility caused by the recent hurricanes, job gains averaged about 170,000 per month from January through October, a somewhat slower pace than last year but still above the range that we estimate will be consistent with absorbing new entrants to the labor force in coming years. With the job gains this year, 17 million more Americans are employed now than eight years ago. Meanwhile, the unemployment rate, which stood at 4.1 percent in October, has fallen 0.6 percentage point since the turn of the year and is nearly 6 percentage points below its peak in 2010. In addition, the labor force participation rate has changed little, on net, in recent years, which is another indication of improving conditions in the labor market, given the downward pressure on the participation rate associated with an aging population. However, despite these labor market gains, wage growth has remained relatively modest. Unemployment rates for African Americans and Hispanics, which tend to be more sensitive to overall economic conditions than those for whites, have moved down, on net, over the past year and are now near levels last seen before the recession. That said, it remains the case that unemployment rates for these minority groups are noticeably higher than for the nation overall.
Meanwhile, economic growth appears to have stepped up from its subdued pace early in the year. After having risen at an annual rate of just 1-1/4 percent in the first quarter, US inflation-adjusted gross domestic product (GDP) is currently estimated to have increased at a 3 percent pace in both the second and third quarters despite the disruptions to economic activity in the third quarter caused by the recent hurricanes. Moreover, the economic expansion is increasingly broad based across sectors as well as across much of the global economy. I expect that, with gradual adjustments in the stance of monetary policy, the economy will continue to expand and the job market will strengthen somewhat further, supporting faster growth in wages and incomes. Although asset valuations are high by historical standards, overall vulnerabilities in the financial sector appear moderate, as the banking system is well capitalized and broad measures of leverage and credit growth remain contained.
Even with a step-up in growth of economic activity and a stronger labor market, inflation has continued to run below the 2 percent rate that the Federal Open Market Committee (FOMC) judges most consistent with our congressional mandate to foster both maximum employment and price stability. Increases in gasoline prices in the aftermath of the hurricanes temporarily pushed up measures of overall consumer price inflation, but inflation for items other than food and energy has remained surprisingly subdued. The total price index for personal consumption expenditures increased 1.6 percent over the 12 months ending in September, while the core price index, which excludes energy and food prices, rose just 1.3 percent over the same period, about 1/2 percentage point slower than a year earlier. In my view, the recent lower readings on inflation likely reflect transitory factors. As these transitory factors fade, I anticipate that inflation will stabilize around 2 percent over the medium term. However, it is also possible that this year's low inflation could reflect something more persistent. Indeed, inflation has been below the Committee's 2 percent objective for most of the past five years. Against this backdrop, the FOMC has indicated that it intends to carefully monitor actual and expected progress toward our inflation goal.
Although the economy and the jobs market are generally quite strong, real GDP growth has been disappointingly slow during this expansion relative to earlier decades. One key reason for this slowdown has been the retirement of the older members of the baby-boom generation and hence the slower growth of the labor force. Another key reason has been the unusually sluggish pace of productivity growth in recent years. To generate a sustained boost in economic growth without causing inflation that is too high, we will need to address these underlying causes. In this regard, the Congress might consider policies that encourage business investment and capital formation, improve the nation's infrastructure, raise the quality of our educational system, and support innovation and the adoption of new technologies.
Monetary Policy
I will turn now to the implications of recent economic developments and the outlook for monetary policy. With ongoing strengthening in labor market conditions and an outlook for inflation to return to 2 percent over the next couple of years, the FOMC has continued to gradually reduce policy accommodation. The Committee raised the target range for the federal funds rate by 1/4 percentage point at both our March and June meetings, with the range now standing at 1 to 1-1/4 percent. And, in October, the Committee began its balance sheet normalization program, which will gradually and predictably reduce our securities holdings. The Committee set limits on the pace of balance sheet reduction; those limits should guard against outsized moves in interest rates and other potential market strains. Indeed, there has been little, if any, market effect associated with the balance sheet runoff to date. We do not foresee a need to alter the balance sheet program, but, as we said in June, we would be prepared to resume reinvestments if a material deterioration in the economic outlook were to warrant a sizable reduction in the federal funds rate.
Changes to the target range for the federal funds rate will continue to be the Committee's primary means of adjusting the stance of monetary policy. At our meeting earlier this month, we decided to maintain the existing target range for the federal funds rate. We continue to expect that gradual increases in the federal funds rate will be appropriate to sustain a healthy labor market and stabilize inflation around the FOMC's 2 percent objective. That expectation is based on the view that the current level of the federal funds rate remains somewhat below its neutral level--that is, the rate that is neither expansionary nor contractionary and keeps the economy operating on an even keel. The neutral rate currently appears to be quite low by historical standards, implying that the federal funds rate would not have to rise much further to get to a neutral policy stance. If the neutral level rises somewhat over time, as most FOMC participants expect, additional gradual rate hikes would likely be appropriate over the next few years to sustain the economic expansion.
Of course, policy is not on a preset course; the appropriate path for the federal funds rate will depend on the economic outlook as informed by incoming data. The Committee has noted that it will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. More generally, in determining the timing and size of future interest rate adjustments, the Committee will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
Thank you. I would be pleased to answer your questions.
Janet L. Yellen submitted her resignation Monday as a Member of the Board of Governors of the Federal Reserve System, effective upon the swearing in of her successor as Chair.
Dr. Yellen, 71, was appointed to the Board by President Obama for an unexpired term ending January 31, 2024. Her term as Chair expires on February 3, 2018. She also serves as Chair of the Federal Open Market Committee, the System's principal monetary policymaking body.
Prior to her appointment as Chair, Dr. Yellen served as Vice Chair of the Board of Governors, from October 2010 to February 2014, and as President of the Federal Reserve Bank of San Francisco, from June 2004 to October 2010. She was initially appointed to the Board by President Clinton in August 1994 and served until February 1997, when she resigned to serve as Chair of the President's Council of Economic Advisers, until August 1999.
Dr. Yellen is Professor Emerita at the University of California at Berkeley, where she has been a member of the faculty since 1980. She was born in Brooklyn, New York, in August 1946 and received her undergraduate degree in economics from Brown University in 1967 and her Ph.D. in economics from Yale University in 1971. Dr. Yellen is married and has an adult son.
More Articles
- National Institutes of Health: For Healthy Adults, Taking Multivitamins Daily is Not Associated With a Lower Risk of Death
- November 1, 2023 Chair Jerome Powell’s Press Conference on Employment and Inflation
- Board of Governors of the Federal Reserve System: Something’s Got to Give by Governor Christopher J. Waller
- Jerome Powell's Semiannual Monetary Policy Report; Strong Wage Growth; Inflation, Labor Market, Unemployment, Job Gains, 2 Percent Inflation
- February’s Hot Data Releases: Governor Christopher J. Waller, Federal Reserve Board Frames a Few of the Issues Around Inflation and the Economic Outlook
- Congressional Budget Office: Federal Budget Deficit Totals $1.4 Trillion in 2023; Annual Deficits Average $2.0 Trillion Over the 2024–2033 Period
- The Beige Book Summary of Commentary on Current Economic Conditions By Federal Reserve District Wednesday November 30, 2022
- "Henry Ford Innovation Nation", a Favorite Television Show
- Gender and Labor Markets by Diego Mendez-Carbajo* : "Sure [Fred Astaire] was great, but don't forget that Ginger Rogers did everything he did…backwards and in high heels." — Robert Thaves1
- How They Did It: Tampa Bay Times Reporters Expose High Airborne Lead Levels at Florida Recycling Factory