|
 In a speech at the Fed's annual central bank conference, Yellen laid
out in detail why she feels the unemployment rate alone is
inadequate to evaluate the strength of the jobs market and why the
central bank needs to step gingerly.
Her remarks were followed by a speech by the head of the European
Central Bank, Mario Draghi, who said the ECB was ready to use all
the tools at its disposal to lift euro zone inflation if it
continued to drop. He said, however, that most factors that had
weighed on prices appeared temporary.
Together, the comments from Yellen and Draghi underscored how both
central banks were wrestling with the complexities of labor markets
still-wracked by the 2007-2009 financial crisis.
Yellen stood by her view that significant slack remains in the U.S.
economy, even as she nodded to the counter-arguments of some of her
colleagues who feel labor markets are tighter than she believes and
inflation a risk.
"There is no simple recipe for appropriate policy," she said,
arguing for a "pragmatic" approach that focuses on incoming data
without committing to a preset policy path.
Ahead of her comments, a number of top Fed officials pressed their
case for an early hike in benchmark rates, which the U.S. central
bank has held near zero since December 2008.
Philadelphia Fed President Charles Plosser, a voting member of the
Fed's policy panel this year, and two non-voters - St. Louis Fed
President James Bullard and Kansas City Fed President Esther George
- all sounded warnings on the risk of falling behind the curve.
"I'd rather see us start to raise rates earlier and try to go slow
than to wait until the last minute," Plosser told Reuters in an
interview in Jackson Hole.
LABOR MARKET SLACK
Yellen said the Fed was struggling to determine the degree to which
the still-soft U.S. labor market was suffering from long-term
structural shifts beyond the central bank's reach as opposed to more
temporary factors that low rates could address.
Given the uncertainty, she said assessments of the labor market
"need to become more nuanced." Some officials argue the welter of
labor market data Yellen likes to parse offers little useful
information beyond the jobless rate and pace of hiring.
Financial market reaction to Yellen's remarks was muted, with prices
for U.S. stocks and most Treasury securities largely unchanged. The
dollar, however, moved higher, while the yield on the 30-year
Treasury bond fell.
"Janet Yellen confirmed the majority view of the (Fed's policy
committee): much more labor recovery is needed before the Fed raises
policy rates," said David Kotok, chairman of Cumberland Advisors in
Sarasota, Florida.
Draghi's remarks, in contrast, marked a rhetorical escalation
regarding the ECB's readiness to take further steps to bolster a
euro zone economy that failed to grow in the second quarter and
which has seen inflation drop to just 0.4 percent.
[to top of second column] |
The ECB, he said, would "use all the available instruments needed to
ensure price stability over the medium term."
Still, he largely focused on the plight of labor markets, calling
for a more cohesive response from policymakers across the single
currency bloc to tackle unemployment.
"The way back to higher employment ... is a policy mix that combines
monetary, fiscal and structural measures at the union level and at
the national level," he said.
Yellen's speech included lengthy references to the possibility the
U.S. labor market may in fact be tighter then it seems, and she
acknowledged the Fed may have to raise rates sooner and faster than
expected.
But, overall, Yellen's remarks marked a defense of her premise that
significant slack remained in the jobs market, even though she said
the 2007-2009 financial crisis and recession damaged the economy and
work force in ways not fully understood.
The Fed has said it would wait a "considerable time" after winding
down a stimulative bond-buying program in October before raising
rates. Financial markets currently expect a rate hike around the
middle of next year.
Determining the degree of labor market slack has become the central
debate at the Fed. Yellen wants to be sure employment has recovered
as fully as possible before raising rates.
In contrast, the inflation "hawks" worry that more months of
near-zero rates will cause inflation or possible asset bubbles.
"If we're trying to solve a labor market problem, (Yellen's) speech
enumerated just how hard that is," Plosser told Reuters. "Some of
the things she alluded to we just can't fix."
(Reporting by Howard Schneider, Michael Flaherty and Jonathan
Spicer; Additional reporting by Luciana Lopez in New York; Editing
by Tim Ahmann and Paul Simao)
[© 2014 Thomson Reuters. All rights
reserved.] Copyright
2014 Reuters. All rights reserved. This material may not be
published, broadcast, rewritten or redistributed. |
