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16 Apr 2014
Yellen: Low rates for a long time; 'full employment' in 2016
FXStreet (San Francisco) - The United States would enter into 'full employment' situation in 2016 according to the words of the Federal Reserve's chair Janeth Yellen who affirmed in her latest speech at the Economic Club of New York that the committee considers full employment as '5.2% to 5.6% unemployment.'
According to Yellen, the expansion that began after the financial crisis 5 years ago has create more than 8 million jobs, 'almost the same number lost as a result of the recession.'
Yellen also stated that the Committee is considering low rates for a long period of time. 'In other words, the larger the shortfall of employment or inflation from their respective objectives, and the slower the projected progress toward those objectives, the longer the current target range for the federal funds rate is likely to be maintained.
Specifically, 'in determining how long to maintain the current target range of 0 to 25 basis points for the federal funds rate, "the Committee will assess progress, both realized and expected, toward its objectives of maximum employment and 2 percent inflation.'
Regarding reactions in the currency market, the US Dollar index, which tracks the greenback vs. its major rivals, 'is mostly steady after the dovish tone from Chairwoman Janet Yellen,' commented FXStreet Pablo Piovano. 'Netting an even session so far around the 79.80 level and interrupting the bounce off recent lows near 79.30.'
Key quotes:
In recent months, some indicators have been notably weak, requiring us to judge whether the data are signaling a material change in the outlook. The unusually harsh winter weather in much of the nation has complicated this judgment, but my FOMC colleagues and I generally believe that a significant part of the recent softness was weather related.
Broader measures of unemployment that include workers marginally attached to the labor force and those working part time for economic reasons have fallen a bit more than the headline unemployment rate, and labor force participation, which had been falling, has ticked up this year.
FOMC participant projections for the unemployment rate at the end of 2016 is 5.2 to 5.6 percent, and for inflation the central tendency is 1.7 to 2 percent.
When these thresholds were announced, the unemployment rate was reported to be 7.7 percent, and the Committee projected that the 6-1/2 percent threshold would not be reached for another 2-1/2 years--in mid-2015. The Committee emphasized that these numerical criteria were not triggers for raising the federal funds rate, and Chairman Bernanke stated that, ultimately, any decision to begin removing accommodation would be based on a wide range of indicators
Specifically, in determining how long to maintain the current target range of 0 to 25 basis points for the federal funds rate, "the Committee will assess progress, both realized and expected, toward its objectives of maximum employment and 2 percent inflation."24 In other words, the larger the shortfall of employment or inflation from their respective objectives, and the slower the projected progress toward those objectives, the longer the current target range for the federal funds rate is likely to be maintained.
According to Yellen, the expansion that began after the financial crisis 5 years ago has create more than 8 million jobs, 'almost the same number lost as a result of the recession.'
Yellen also stated that the Committee is considering low rates for a long period of time. 'In other words, the larger the shortfall of employment or inflation from their respective objectives, and the slower the projected progress toward those objectives, the longer the current target range for the federal funds rate is likely to be maintained.
Specifically, 'in determining how long to maintain the current target range of 0 to 25 basis points for the federal funds rate, "the Committee will assess progress, both realized and expected, toward its objectives of maximum employment and 2 percent inflation.'
Regarding reactions in the currency market, the US Dollar index, which tracks the greenback vs. its major rivals, 'is mostly steady after the dovish tone from Chairwoman Janet Yellen,' commented FXStreet Pablo Piovano. 'Netting an even session so far around the 79.80 level and interrupting the bounce off recent lows near 79.30.'
Key quotes:
In recent months, some indicators have been notably weak, requiring us to judge whether the data are signaling a material change in the outlook. The unusually harsh winter weather in much of the nation has complicated this judgment, but my FOMC colleagues and I generally believe that a significant part of the recent softness was weather related.
Broader measures of unemployment that include workers marginally attached to the labor force and those working part time for economic reasons have fallen a bit more than the headline unemployment rate, and labor force participation, which had been falling, has ticked up this year.
FOMC participant projections for the unemployment rate at the end of 2016 is 5.2 to 5.6 percent, and for inflation the central tendency is 1.7 to 2 percent.
When these thresholds were announced, the unemployment rate was reported to be 7.7 percent, and the Committee projected that the 6-1/2 percent threshold would not be reached for another 2-1/2 years--in mid-2015. The Committee emphasized that these numerical criteria were not triggers for raising the federal funds rate, and Chairman Bernanke stated that, ultimately, any decision to begin removing accommodation would be based on a wide range of indicators
Specifically, in determining how long to maintain the current target range of 0 to 25 basis points for the federal funds rate, "the Committee will assess progress, both realized and expected, toward its objectives of maximum employment and 2 percent inflation."24 In other words, the larger the shortfall of employment or inflation from their respective objectives, and the slower the projected progress toward those objectives, the longer the current target range for the federal funds rate is likely to be maintained.