By Jon Hilsenrath and Pedro Nicolaci da Costa
JACKSON HOLE, Wyo.--Federal Reserve Chairwoman Janet Yellen pointed to an improving U.S. job market, but was noncommittal about how this progress would affect the timing of interest rate increases in a speech before global central bankers at an economic symposium here.
"The economy has made considerable progress in recovering from the largest and most sustained loss of employment in the United States since the Great Depression," she said in remarks delivered here Friday. "These developments are encouraging, but it speaks to the depth of the damage that, five years after the end of the recession, the labor market has yet to fully recover."
Ms. Yellen stuck to an equivocalline she used in July in testimony to Congress. If the job market continues to improve more rapidly than expected or inflation rises quickly to the Fed's 2% goal, the Fed could raise rates sooner than expected. But if progress stalls, low rates will persist.
She delivered her comments amid a deepening debate at the U.S. central bank about when to start raising short-term interest rates from near zero, where they have been since December 2008. Many Fed officials don't expect to move rates until mid-2015, but a falling jobless rate and other indicators of improving job markets have led some officials to press for earlier moves.
Labor indicators "have improved more rapidly than the (Fed) had anticipated," Ms. Yellen acknowledged. However her comments made clear that she isn't ready to move, in part because she is grappling for answers to questions about puzzling labor markets scrambled by the 2008 financial crisis.
"There is no simple recipe for appropriate policy in this context," Ms. Yellen said. "Monetary policy ultimately must be conducted in a pragmatic manner that relies not on any particular indicator or model, but instead reflects an ongoing assessment of a wide range of information in the context of our ever-evolving understanding of the economy."
Judging the degree of slack in the economy is particularly hard right now, she argued, because of shifts in labor force participation, part-time employment, the demographics of the workforce, wage growth and broader measures of labor market dynamism. "A considerable body of research suggests that the behavior of these and other labor market variables has changed since the Great Recession," she said, complicating her decisions.
The Fed's low-interest rate policies have been controversial, with even some Fed officials worrying the central bank is either laying the groundwork for a spurt of high inflation or pumping up bubbles in asset markets.
Her remarks suggested Ms. Yellen is growing more ambivalent about the central bank's prolonged policy of low interest rates. In one place, for example, she expressed some concern that the Fed could wait too long to raise rates, whereas in the past she had tended to emphasize the risks of moving too soon.
"Maintaining a high degree of monetary policy accommodation until inflation pressures emerge could, in this case, unduly delay the removal of accommodation, necessitating an abrupt and potentially disruptive tightening of policy later on," she said.
However here, too, she was equivocal. A stronger economy and higher wages might in turn draw workers back into the labor force and hold down wages in the longer run. "As a consequence, tightening monetary policy as soon as inflation moves back toward 2% might, in this case, prevent labor markets from recovering fully."
Many private forecasters now expect the Fed will begin raising interest rates in the summer of 2015, a view many Fed officials have encouraged.
Write to Jon Hilsenrath at firstname.lastname@example.org and Pedro Nicolaci da Costa at email@example.com
(END) Dow Jones Newswires
August 22, 2014 11:34 ET (15:34 GMT)
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