There’s a new Fed chief in town.
Janet Yellen made her brand spanking debut on Capitol Hill today.
Yellen testified before the House Financial Services Committee about her intentions as Federal Reserve chair now that she’s supplanted former chair Ben Bernanke. As with Bernanke’s frequent Capitol Hill testimonies and press conferences, Wall Street hung on Yellen’s every word.
Here are some highlights of what she said this morning:
Janet Yellen on the state of the U.S. economy:
- At 6.6%, “the unemployment rate is still well above levels … consistent with maximum employment.”
- The recent decline of emerging markets poses no significant threats to the U.S. economy.
Yellen on QE3, the Fed’s ongoing bond-buying program:
- While 6.5% unemployment remains a threshold for considering raising short-term interest rates from near zero, but hitting that level “will not automatically prompt” the Fed to raise rates.
- In the meantime, the Fed is likely to continue reducing its bond purchases. What had been an $85 billion-per-month bond-buying stimulus measure has been reduced to $65 billion in the last two months. Yellen expects the Fed to continue reducing – i.e. “tapering,” as Bernanke once infamously called it – its bond-buying program as the economy improves.
- “If the economy continues to improve, we’re likely to continue reducing asset purchases in measured steps,” Yellen said.
On how Fed policy may change with her replacing Bernanke:
- Yellen promised a “great deal of continuity” between her regime and Bernanke’s, and she supports the current policy that Bernanke implemented.
- “The purpose (of the current policy) is to spur spending in the economy, and to achieve more economic growth. We certainly saw a pickup in housing activity, and a very meaningful increase in house prices, which has improved the security of people in their mortgages … Housing is a good example of where the Fed policy has been successful.”
- “Since the beginning of this program, we have seen unemployment decline 1.5%.”
On whether last month’s weak jobs report will convince the committee to slow its tapering:
“It’s important not to jump to conclusions. What would cause the committee to consider the cause is a notable change in the outlook. We do need to see growth at an above-trend pace to see continued improvement in the labor market.”
Stocks were up very slightly while Yellen spoke this morning. Because she is essentially vowing to maintain the status quo, there wasn’t a whole lot for investors to sink their teeth into.
The next Federal Open Market Committee (FOMC) meeting isn’t until March 18-19. Stay tuned.