Federal Reserve chairwoman Janet Yellen said on Friday that the US economy was improving but warned there was a “possibility that the severe recession caused persistent changes in the labour market’s functioning”.
Yellen’s first speech at the annual meeting of global central bankers in Jackson Hole, Wyoming, focused largely on the jobs market.
“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. “These developments are encouraging, but it speaks to the depth of the damage that, five years after the end of the recession, the labour market has yet to fully recover.”
The US has added more than 200,000 jobs each month for six months in a row. Yellen said that despite the improvements the Fed was awaiting more evidence about the health of labour markets before deciding when to start raising interest rates.
The US central bank has kept rates close to zero since December 2008 when the US entered a recession following the bursting of the housing bubble. It has also poured billions each month into the US economy through a series of bond buying programmes known as quantitative easing (QE). QE is due to end later this year, but Yellen gave no clear indication about when, or if, rates would rise.
Yellen, an expert in labour markets, used the speech, seen as one of the most important in the Fed’s calendar, to outline her views on the state of the jobs’ market. She said there was a “considerable body of research” that the recession had changed the jobs market.
“Along with cyclical influences, significant structural factors have affected the labour market, including the ageing of the workforce and other demographic trends, possible changes in the underlying degree of dynamism in the labor market, and the phenomenon of ‘polarization’ – that is, the reduction in the relative number of middle-skill jobs,” she said.
As the recovery has progressed Yellen said that the Fed’s review of the labour market has needed to “become more nuanced”. She said the Fed’s policy committee’s decisions “will not be based on any single indicator, but will instead take into account a wide range of information on the labour market, as well as inflation and financial developments”.
In a note to clients Dan Greenhaus, chief strategist at broker BTIG, wrote: “Today’s speech from Janet Yellen is more or less what should have been expected. She maintains the view that more work lay ahead but presents a set of ‘on the other hand’ explanations for number of indicators and observations. For example, the word ‘however’ appears eight times in the speech and any number of ‘converselys’ make an appearance. At seemingly every turn, when articulating the view that a given indicator suggests labor market weakness or slack, she balances the observation with an alternative argument.
“There’s nothing necessarily new in today’s speech (as expected) but if we had to make a singular statement, the speech suggests those calling for an earlier rate hike did not today receive additional support.”
US stock markets dipped marginally following the speech with the Dow Jones Industrial Average declining 0.13%.
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