Yellen stays the course, says Fed to keep trimming stimulus

Tue Feb 11, 2014 5:02pm EST
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By Jonathan Spicer and Jason Lange

WASHINGTON (Reuters) - Janet Yellen, fresh from taking the helm of the Federal Reserve, made it clear on Tuesday she would not make any abrupt changes to U.S. monetary policy, saying the central bank was on track to keep reducing its stimulus even though the labor market recovery was far from complete.

In her first public comments since becoming Fed chief earlier this month, Yellen had testy exchanges with some Republican lawmakers over Wall Street regulation and central bank independence. But she managed to keep financial markets calm by emphasizing continuity with the policy approach taken by her predecessor, Ben Bernanke.

Yellen said the central bank must keep its eye on the "unusually high" incidence of long-term unemployment and the "exceptionally high" proportion of Americans who can find only part-time work as it plots a tricky reversal of its very accommodative policy stance.

"By a number of measures our economy is not back, the labor market is not back, to normal," Yellen told the U.S. House of Representatives' Financial Services Committee. "There's a great deal of slack in the labor market still."

Under Bernanke, the Fed bought trillions of dollars in bonds to drive borrowing costs lower and spur investment and hiring, swelling its balance sheet to more than $4 trillion. In December, it decided to begin scaling back its support given a drop in unemployment and stronger economic growth.

Since then, however, signs have emerged of a sharp slowdown in jobs growth, leading some investors to wonder whether the Fed might put the wind-down of its bond-buying program on hold.

But Yellen showed little inclination to change tack. She said the Fed would likely take "further measured steps" to curb its stimulus if data broadly supports policymakers' expectation of improved labor markets and a rise in inflation, and she cautioned against reading too much into recent jobs figures.

Prices for U.S. government bonds slipped and stocks rose, with major indexes closing up more than 1 percent, as investors saw few surprises in Yellen's comments.   Continued...

Federal Reserve Chair Janet Yellen (C) arrives to testify before a House Financial Services Committee hearing on "Monetary Policy and the State of the Economy." at the Rayburn House Office Building in Washington, February 11, 2014. REUTERS/Mary F. Calvert