By Howard Schneider and Michael Flaherty
WASHINGTON, (Reuters) – The U.S. economic recovery remains incomplete, with a still-ailing job market and stagnant wages justifying loose monetary policy for the foreseeable future, Federal Reserve Chair Janet Yellen told a Senate committee on Tuesday.
In a strong defense of the central bank’s current stance, Yellen said that early signs of a pickup in inflation aren’t enough for the Fed to accelerate its plans for raising interest rates, a move currently expected in the middle of next year.
That could change, with interest rates rising sooner and faster, if data show labor markets improving more quickly than expected, she said.
But as it stands, “although the economy continues to improve, the recovery is not yet complete,” Yellen said in semi-annual testimony before the Senate Banking Committee, repeating her focus on lagging labor force participation and weak wage growth as key to any conclusions about the economy’s health.
“Too many Americans remain unemployed,” Yellen said.
Yellen presented a broad overview of an economy still in transition from the 2007-2009 economic crisis. In an accompanying report, the Fed said its balance sheet would top out at $4.5 trillion when its bond-buying program ends in October, a sign of how much stimulus the central bank has had to unleash to support the economy.
With another $2.6 trillion held in reserve by banks, the report said it “will not be feasible” for the Fed to rely on the traditional Fed Funds market to manage interest rates – a judgment implicit in its recent work on new interest rate tools.
In her remarks, Yellen said the economy continues to generate jobs and steady growth. But she said Fed policymakers currently expect their preferred measure of inflation to stand at between 1.5 percent and 1.75 percent for 2014, short of the central bank’s 2 percent target. The housing market remains weak, Yellen said, and business investment less than hoped.
Thriving equity and security markets have raised concerns of a possible bubble, but Yellen said that the values of stocks, bonds and other assets “remain generally in line with historic norms.”
Fed chairs are mandated by law to report to Congress twice a year on monetary policy, and the hearing on Tuesday is Yellen’s second such appearance. Her first turned into a marathon grilling about her philosophy and views of the economy.
The Fed faces a complex agenda as it weans the U.S. economy from the massive stimulus programs put in place to fight the financial crisis.
Economic data has kept Fed policymakers relatively upbeat that the economy will make steady progress towards the central bank’s goals.
But there is also the potential for serious division.
Some policymakers worry the Fed is falling behind the curve on rate hikes and that Yellen is taking too much of an impromptu approach to the interest rate decision. In her prepared testimony, she held firm to her view that low labor force participation and other labor market statistics are evidence of slack that needs to be absorbed by stronger job growth, not just a sign of unavoidable demographic change.
For now, a more dovish approach holds sway at the central bank, with several officials saying they’d tolerate inflation higher than the 2 percent target for a period of time in order to ensure growth is on track, wages are rising, and as many workers as possible have been drawn back into jobs.
(Reporting by Howard Schneider; Editing by Paul Simao)
Internet goes wild over ‘obviously drunk’ Larry Kudlow on Fox News: ‘He’s lying while slurring his words’
Speculation was rampant on Sunday that White House economic adviser Larry Kudlow was drunk on Fox News.
"There is no economic recession in sight," Kudlow insisted to Fox News Sunday host Dana Perino.
Twitter, however, was buzzing about Kudlow's speech patterns instead of his questionable economic optimism.
"Pretty sure Larry Kudlow is drunk on my TV right now... And he is lying while slurring his words," one Twitter user noted.
"Kudlow is on fox news Sunday right now and from my 30 yrs of tending bar, I gotta say this guy appears drunk," another user observed.
Foreign diplomats preparing for the worst — another Trump win in 2020: ‘People don’t want to be stupid twice’
According to a report from Politico, foreign diplomats are not so sure Donald Trump will be beaten in the 2020 election and are making contingency plans for how they will deal with him should he be re-elected.
The report notes that the win by the New York businessman in 2016 caught foreign governments by surprise with former French ambassador to the United States, Gerard Araud admitting, "In 2016, nobody believed he was going to be elected. People don’t want to be stupid twice.”
According to Politico, "There’s no known scientific survey on the topic — few foreign officials would participate in one given diplomatic norms that preclude them from commenting on another country's internal politics. But none who talked to POLITICO were willing to say that Trump will lose. Instead, they pointed to three key advantages for Trump: He’s the incumbent, the U.S. economy is strong and the Democrats have no definitive front-runner to challenge him."
Trump Twitter-rages at ‘evil propaganda machine’ New York Times
President Donald Trump kicked off his Sunday morning by going on a multi-tweet rant about the New York Times where he blamed them for his poor poll numbers and called them "an evil propaganda machine.'
Trump began with, "The Failing New York Times, in one of the most devastating portrayals of bad journalism in history, got caught by a leaker that they are shifting from their Phony Russian Collusion Narrative (the Mueller Report & his testimony were a total disaster), to a Racism Witch Hunt....., " before adding, "'Journalism' has reached a new low in the history of our Country. It is nothing more than an evil propaganda machine for the Democrat Party. The reporting is so false, biased and evil that it has now become a very sick joke...But the public is aware! #CROOKEDJOURNALISM."