Yellen arriesga su reputación guiando a la Fed a la salida del estímulo

Si fracasa, podría asfixiar el empleo, o peor aún, arrastrar a la economía de EEUU a la recesión.

Por Isabel Ramos J.

Janet Yellen está guiando a la Reserva Federal de Estados Unidos hacia su primer aumento de tasas de interés en una década, armada con modelos económicos tradicionales. ¿Pero serán efectivos en un escenario nuevo de impresión masiva de dinero y tasas cercanas a cero?

La economista de 69 años argumenta que está llegando el momento de un alza de tasas, pese a que la inflación aún no se ha acelerado, confiando en los estudios que sugieren que un mercado laboral ajustado creará, eventualmente, presiones inflacionarias.

Noticias Relacionadas

1. La zona euro marca su mayor ritmo de crecimiento en cuatro años
2. El mercado, preparado para la primera subida de tasas en EEUU desde 2006
3. Después de la esperada alza, cómo será el camino de la Fed hacia adelante

Pero esta es una jugada riesgosa, considerando que la inflación global está en mínimos históricos y muchos bancos centrales se mantienen en modo de flexibilización, intentando que sus economías obtengan tracción.

Si está en lo correcto, Yellen, quien ya presidió el fin del programa de estímulo de compra de bonos de la Fed, cimentará su reputación y la de su “tablero de mando”, que depende de las relaciones entre empleo, salarios y precios.

Si se equivoca, la Fed podría sumarse al Banco Central Europeo y a los bancos centrales de Suecia, Israel y Canadá, que han intentado, pero han fracasado, en escapar de la carga de las tasas en cero luego de la crisis financiera de 2007-2009.

Otro de los riesgos es asfixiar el empleo. Mayores tasas de interés podrían enfriar el gasto de los consumidores (que representan 70% del PIB estadounidense) y de la inversión de las empresas. En este caso, los más afectados serían los desempleados, las personas que obtuvieron un empleo recientemente y los trabajadores menos calificados.

Pero la mayor amenaza es arrastrar a la economía a la recesión. Si la Fed comete un error, será difícil corregirlo, advirtieron ayer el ex secretario del Tesoro Larry Summers y el economista Nouriel Roubini.

“Hay preguntas importantes sobre la perspectiva de crecimiento, sobre la perspectiva de alcanzar la meta de inflación de 2%, sobre las incertidumbres en los mercados financieros”, planteó Summers en una entrevista con Bloomberg TV en Dubai. Demorar el alza de los tipos “representa riesgos que son fáciles de revertir”, pero subir las tasas “es una decisión mucho más difícil de corregir”, aseguró.

Algo similar expresa Roubini, presidente de Roubini Global Economics. Si la Fed se mueve lento “y la economía se vuelve muy fuerte y la inflación repunta, estará detrás de la curva, pero igual podrá ajustar un poco más rápido”, dijo. El dilema es que “los datos del mercado laboral sugieren que es momento de empezar a subir, pero no hay señales de inflación en la economía”.

Yellen “se basa en un modelo tradicional, pero está muy conciente de que hay incertidumbre”, dijo Randall Kroszner, quien trabajó con Yellen como gobernador de la Fed entre 2006 y 2009, a Reuters.

“Es posible, aunque improbable, que los modelos tradicionales estén equivocados y estemos probablemente en un mundo totalmente nuevo”, pero ella no va a actuar por instinto, acotó.

GUÍA DEL DÍA HISTÓRICO

16.00 horas: (Chile) el Comité Federal de Mercado Abierto (FOMC) de la Fed entregará un comunicado de prensa anunciando su decisión tras dos días de reunión.

16.30 horas: conferencia de prensa de la presidenta de la Fed, Janet Yellen, explicando el camino hacia adelante. Los puntos clave serán:

Ritmo de alza de tasas siguientes: las autoridades monetarias han dicho que será gradual. En septiembre hablaron de cuatro en 2016, pero el mercado ya especula con sólo dos.

Meta de inflación: ¿cuán lejos estima la Fed que está la inflación de su meta de 2%?

Mecanismos: la Fed dijo en junio que entregaría una "nota de implementación" para explicar los mecanismos que usará para subir los tipos. La Fed nunca ha subido las tasas con un balance tan grande.

www.df.cl

Fed Upgrades Economic Outlook But Is Still Not Ready To Raise Rates

Federal Reserve Chair Janet Yellen during a discussion on global finance during in May. (Photo by Mark Wilson/Getty Images)

Samantha Sharf

Forbes Staff

In what could have been the most exciting Fed meeting of the year Janet Yellen and her team instead decided to stay the course. Following a two day meeting the members of the Federal Open Market Committee released their latest policy statement Wednesday. It confirmed interest rates will remain near zero at least until the board’s July meeting and likely until September or beyond.

The policy statement again reads: “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”

As was the case in April — the FOMC’s most recent gathering — it was not clear from the new statement when the board expects to move. This time, however, investors can look to members’ interest rate projections, take on the economy and Yellen’s press conference for clues. The evidence points to a first hike this year but whether that will be in September or December – it is widely believed a hike will only happen at a meeting followed by a press conference — is less clear.

In a press conference following the release Yellen reiterated that rate changes will be considered on a “meeting-by-meeting basis.” Yellen also noted, “Compared with the projections made in March, most FOMC participants lowered somewhat their paths for the federal funds rate consistent with the revisions made to the projections for GDP growth and the unemployment rate. The median projection for the federal funds rate continues to point to a first increase later this year.”

The mid-point of the FOMC members’ projections for the fed funds rate was steady at 0.625% at the end of 2015 but fell to 1.375% at the end of 2016 and 2.875% at the end of 2017. Of the 17 participants 15 said it would be appropriate to start firming monetary policy this year which gives them four meeting to act. The dot plot also strengthened the Fed’s commitment to adjust rates slowly once it does act, since it would take less than two 0.25% moves to get from the current target rate of 0% to 0.25% to 0.625% by the end of the year. Seven members expect just a single hike this year.

Beyond that first hike (with Yellen aimed to minimize the significance of), Yellen pointed out: “We absolutely do not expect to follow any mechanical 25 basis points a meeting, 25 basis points every other meeting [plan]. [We have] no plan to follow any type of mechanical approach to raising the federal funds rate.”

At the start of this year economist and investors saw June as a likely contender to host the first rate hike. As recently as March the Fed was not discouraging this view but that possibility was more or less wiped out in April following reports of sluggish first quarter GDP growth (the Bureau of Economic Analysis eventually concluded the economy actually contracted in Q1).

Therefore another potential clue that investors can still expect a rate hike this year is the more optimistic tone the Fed struck in its discussion of the economy. In April they said economic growth had slowed during the winter, arguing the slow down was transitory. They also described the pace of job growth as “moderated.” The new statement says:

Information received since the Federal Open Market Committee met in April suggests that economic activity has been expanding moderately after having changed little during the first quarter. The pace of job gains picked up while the unemployment rate remained steady. On balance, a range of labor market indicators suggests that underutilization of labor resources diminished somewhat. Growth in household spending has been moderate and the housing sector has shown some improvement; however, business fixed investment and net exports stayed soft. Inflation continued to run below the Committee’s longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports; energy prices appear to have stabilized. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.”

Yellen elaborated, “While the committee views the disappointing economic performance in the first quarter as largely transitory, my colleagues and I would like to see more decisive evidence that a moderate pace of economic growth will be sustained” before raising rates.  

U.S. equity markets, which had turned negative around midday and regained some in the moments leading up to the realse, returned to positive following the 2 p.m. release. The S&P 50, the Dow Jones Industrial Average and the Nasdaq Composite were all up around 0.3%. 

Meanwhile the yield on the 10-year Treasury note was at 2.39, after spending the earlier part of the day between 2.32% and 2.39%. The VIX, a volatility measure from the Chicago Board Options Exchange, was at around 15.36 from a high of 15.49 not long before the announcement.

The Fed definitely isn't raising rates next month

by  

Mark Gongloff

U.S. stocks jumped on the news

The Fed has finally acknowledged the obvious: There’s no way it’s raising interest rates next month.

Many central bankers doubt the U.S. economy will be strong enough to handle a rate hike in June, according to minutes of the Federal Reserve’s April policy meeting, which were released Wednesday. The Fed has hinted for several months it could start raising rates at its next policy meeting, set for June 16 and 17. Many observers thought that was a terrible idea, and now the Fed seems to agree.

U.S. stock prices jumped after the minutes were released. Higher interest rates can be bad news for stocks.

The Fed’s target interest rate affects borrowing costs throughout the economy, including home and auto loans. The Fed has kept that rate near zero since December 2008 — an emergency response to the U.S. economy being a flaming disaster at the time. The recession was so deep, and the recovery so slow and horrible, that the Fed has kept rates near zero for going on six years now. The economy has finally stabilized, with unemployment at just 5.4%, which has the Fed itching to bring interest rates back to something like normal.

But the economy has stumbled a bit lately, with GDPpossibly turning negative in the first quarter, giving the Fed reason to go easy. And wage growth has beenstubbornly flat throughout the recovery — a big concern for the Fed, and another reason to not try to slow the economy down just yet.

La economía mundial sufre su mayor frenazo en casi dos décadas

JOSE LUIS DE HARO (NUEVA YORK

Pese al bombeo de los bancos centrales de medio mundo, con el Banco Central Europeo y el Banco de Japón engullendo bonos soberanos y la Reserva Federal habiendo hecho lo propio hasta engordar su balance al equivalente combinado del PIB español y francés, el arranque de año ha sido más bien decepcionante. Una travesía que muchos esperaban iba a estar embelesada por la caída en el precio del crudo y su efecto en el consumidor de los países importadores de petróleo.

Sin embargo, ni los estadounidenses ni otros ciudadanos a lo largo del planeta parecen haber ejercitado sus carteras, en un momento en que el Fondo Monetario Internacional proyecta que el abaratamiento del oro negro, cuyos precios comienzan a estabilizarse, podría sumar hasta 0,7 puntos porcentuales a la economía global este año. Dicho esto, las ventas minoristas a nivel mundial comenzaron a estancarse en el mes de marzo y parecen haber contagiado su atonía hasta el arranque del segundo trimestre del año.

"Estamos bastante confundidos ante la extrema debilidad del gasto del consumidor dado que los fundamentos del empleo, la riqueza, los tipos de interés son fuertes, además del colapso en los precios del petróleo", señala David Hensley, economista de J.P. Morgan al señalar que las ventas minoristas sólo subieron un 1,3% anualizado en los tres primeros meses del año.

De hecho, según sus cálculos y los de su equipo, la economía mundial sólo avanzó un 1,1% con respecto al anterior trimestre entre enero y marzo de 2015. Para hacernos una idea del frenazo que sufre la actividad económica debemos tener en cuenta que este es el menor ritmo de crecimiento en casi 20 años, si dejamos de lado las recesiones experimentadas durante este periodo de tiempo.

Un parón liderado por EEUU, cuya divergencia con el resto de economías avanzadas parece haber quedado en una simple anécdota. Hensley estima que la segunda revisión del crecimiento estadounidense en el primer trimestre del año registrará una contracción del 1,1%. Otros, como su colega en Goldman Sachs, Jay Hatzius, pronostican un crecimiento negativo del 0,8%.

Pero el letargo económico mundial no sólo llega de la mano de EEUU, donde la Reserva Federal se prepara para subir los tipos de interés por primera vez en nueve años, sino también de los países emergentes, cuyo crecimiento estimado se situó en el 2,1% en el primer trimestre. En este contexto, donde sólo la eurozona y Japón parecen haberse contagiado, con el Viejo Continente avanzando un 1,6% y el país del Sol Naciente dirigido hacia un avance superior al 1,5% según las previsiones, muchos se preguntan cuándo llegará el esperado repunte.

El rebote está cerca

Desde J.P. Morgan aseguran que hay 3 factores que aventuran que este rebote está cerca. En primer lugar están Japón y la Eurozona, cuyo comportamiento hace indicar que estas dos regiones crecerán más rápido de lo previsto en el conjunto del año. Al mismo tiempo, se espera que EEUU regrese a la senda del crecimiento del 2% o el 3% en un momento en que el dólar pierde algo de impulso, el crudo se estabiliza y se digieren los daños colaterales de la huelga el año pasado en el puerto de Long Beach, California.

Aún así, la proyección de la Fed de Atlanta, a través de su GDPNow, indica que, en estos momentos, la economía de EEUU crece un 0,7%. Malos augurios a un lado, el tercer catalizador está en las políticas que Pekín implementa para estimular su expansión y evitar que la segunda mayor economía del mundo se desvíe de sus objetivos de crecimiento.

http://www.eleconomista.es/
 

In the First 100 Days, Janet Yellen Puts Her Own Imprint on the Fed

 In mid-May, Janet Yellen will complete her first 100 days as chair of the Board of Governors of the Federal Reserve System. After taking the helm of the Fed on February 3 — with her official swearing-in a month later — Yellen has navigated an almost seamless entry into the new job, continuing both the style and substance of her predecessor Ben Bernanke, say Wharton professors. The only blip: a remark at her first press conference about when the Fed might start raising rates, which sent markets spiraling.

Yet, a relatively smooth start is no guarantee of calm waters ahead. Bernanke, for instance, enjoyed a quiet first year only to be hit by the biggest financial crisis since the Great Depression. Longer-term challenges may lie in wait for Yellen, too. Even as she and her colleagues tend to their immediate task at hand — carefully calibrating the Fed’s response to the slow economic recovery — larger questions loom.

For one, the relatively fast-growing economy prior to the 2008-2009 financial crisis may give way to a decade or more of slow growth, low productivity gains and slackening job creation, says Joao F. Gomes, a Wharton finance professor. “If that is the world we will live in [going forward], monetary policy may have to look different” and undergo a fundamental rethinking, he notes. The Fed chair must also keep an eye on other major long-term challenges, such as the potentially catastrophic impact of the federal budget deficit on inflation, adds Kent Smetters, a Wharton professor of business economics and public policy.

Imprint on Fed Guidance

For now, Yellen is focused on guiding the Fed’s exit strategy from its accommodative, post-crisis stance. Shouldering Bernanke’s biggest to-dos in his last months as chair, Yellen is continuing to manage both the taper of the Fed’s crisis-era asset purchases and the hotly anticipated uptick in the Fed’s federal funds rate, which has been at zero to 0.25% for the last six years. “The underlying message has not changed” from the tone set by Bernanke’s administration, says Wharton finance professor Krista Schwarz.

“Consciously or not, the dual mandate will be interpreted in the coming years to mean more of a focus on full employment and less on inflation.”–Joao F. Gomes

However, Yellen, a labor market expert, is starting to put her own imprint on the Fed’s guidance, backing away from Bernanke’s numerical unemployment-rate trigger for raising rates in favor of a broader array of labor market and other measures to assess how close the economy is to maximum employment and inflation targets. “She didn’t want to be pinned down by [the unemployment rate], especially given the statements she’s made about how the unemployment rate itself doesn’t necessarily reflect the state of the labor market,” notes Schwarz. “The goal was to loosen the constraints and to leave some scope to change [policy] as the economy evolves in twists and turns.”

By giving the Fed a little wiggle room, Yellen may avoid some of the communications miscues of her predecessor. Near the end of his tenure, Bernanke attempted to give the markets some guidance on when the taper of the Fed’s $85 billion-a-month Treasury and mortgage-backed securities purchases would begin, saying a year ago that the process would start when the unemployment rate fell to 7%, most likely in late 2013. The announcement unsettled the markets: Over the summer, stocks fell, and bonds rose in response. When the unemployment rate reached 7% in November 2013, the Fed waited and did not start the taper until January this year. Bernanke’s Fed then said it would keep short-term interest rates low until unemployment falls to 6.5% and inflation hits 2.5%.

First Meeting

By the time of Yellen’s first Federal Open Market Committee (FOMC) meeting on March 18-19, the unemployment rate had reached 6.7% (and has since fallen to 6.3% in April). At the end of the meeting, the committee continued the Fed’s taper, cutting its securities purchases to $55 billion a month, but jettisoning the 6.5% unemployment rate target by which the Fed would consider raising the federal funds rate. Instead, the committee adopted more qualitative measures, saying it would consider progress toward its twin objectives of “maximum employment and 2% inflation” before raising rates, taking into account “a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.” The FOMC also said it would likely maintain a zero to 0.25% federal funds rate “for a considerable time” after the asset purchase program ends, especially if projected inflation is less than 2%.

Indeed, at her first press conference after the FOMC meeting, Yellen explicitly stated that the Fed would look at a dashboard of indicators to assess the labor market, not just the unemployment rate. Schwarz cites some of those indicators: “Since 2009, the [overall] labor participation rate, for example, has fallen almost exclusively because the labor participation rate of working-age Americans between 25 and 55 has dropped dramatically. In Yellen’s view, things haven’t improved as much as the headline numbers show. Employment rates have barely budged.” The U.S. labor participation rate is now 63%, the lowest since 1978, when women had not yet entered the workforce in large numbers.

“In Yellen’s view, things haven’t improved as much as the headline numbers show. Employment rates have barely budged.”– Krista Schwarz

Yellen also discussed assessing unemployment with a broader measure that includes those working part-time who would prefer to be working full-time and others who are not employed to the extent they would like, Schwarz adds. “Given these other measures, the job market appears worse than the 6.7% unemployment rate would suggest,” she says.

The wild card is still the question of when the Fed will judge the economy to have gained enough steam to raise interest rates. The March FOMC statement said the Fed would not raise rates for a “considerable time” after the body finishes unwinding its asset purchases. Yellen then inadvertently sparked a significant stock market sell-off when she defined that time period to a reporter, answering that it would happen in “probably about six months” — earlier than investors had expected.

Such a communications mishap is almost a rite of passage in the post-Greenspan era of more transparent communications from the Fed chair. A few months into Bernanke’s tenure, a remark to then-CNBC anchor Maria Bartiromo led to a similar market reaction. “Yellen is going to have to work herself through [communications challenges] just like Bernanke did over the last few years,” says Gomes.

Inflation Menace?

For now, Yellen has been fortunate to avoid the tension that the Fed usually faces in fulfilling its dual mandate to promote full employment while fighting inflation. With inflation still in check, Yellen can afford to keep interest rates low while waiting for the labor market to firm up, some analysts say. “People keep thinking the normalization of Fed policy is right around the corner,” Schwarz states. “So far, this big inflation around the corner has turned out to be … non-existent. My own view is that the timing of tightening is further off than the central expectation of mid-2015 and may be in 2016.”

Others are concerned that the leeway Yellen is giving to the labor market may lead to more asset bubbles. “Consciously or not, the dual mandate will be interpreted in the coming years to mean more of a focus on full employment and less on inflation,” says Gomes. “And the tension between protecting against the threat of new asset bubbles and ensuring the economy finally reaches escape velocity will only become more pronounced.”

“The biggest threat of inflation over time is the fact that the White House and Congress can’t balance the budget.”–Kent Smetters

Gomes hopes that Yellen’s sensitivity to labor markets will not dominate Fed policy. “I am skeptical that labor markets should be the main priority of a central banker,” he notes. “When you run monetary policy, you’re a little too far away from the labor markets to be able to influence what is happening. I worry a little bit that she will lose sight of other parts of the economy where she could have impact and that are at least as important, such as supervision and regulation of the financial sector. Monetary policy is essentially about the financial sector, and that is something we should not forget.”

Game Changers

Longer term, adds Gomes, “the biggest [question] is: ‘What is the new normal?’ We were used to a world economy growing at about 3% a year for 15 years, expanding quickly and creating lots of jobs. Can the economy still do this with expected demographic changes, the aftershocks of the recession and new sectors dominating it?”

If growth and job creation slow down over the next 10 years, as suggested by Congressional Budget Office (CBO) projections, the Fed may have to tighten a little earlier, Gomes says. “If productivity does not rise as much as before, we will have inflation sooner,” he explains. “When you start to accept that you’re not going to create so many jobs, and labor participation is [stalled], instead of waiting for labor participation to hit 65% before you raise interest rates, you need to raise interest rates sooner. If future growth is about 2%, as the CBO projects, you need to raise rates sooner than if you think we will grow at 3% again.”

The Fed must also keep in mind another long-term threat to the management of the economy, says Smetters. “Though the Fed chair is primarily [concerned] about monetary policy, [he or she] should give constant reminders of the importance of getting the national debt under control,” Smetters notes. “The biggest threat of inflation over time is the fact that the White House and Congress can’t balance the budget. In the end, the Federal Reserve is going to have to pump up the money supply to deflate the value of all the debt we’re accumulating over next 20 to 30 years, and that could create a negative wealth effect. It’s one of the biggest issues the Federal Reserve faces. We’re on a train and going off a cliff in maybe 20 miles, but we’re still complaining how bumpy ride is now.”

A mere 100 days into her tenure, Yellen has time yet to tackle these issues. At the moment, says Smetters: “Markets have been happy with her forward-looking view, keeping the money supply easy and interest rates low for a while.”

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Everyone's Flagging One Warning From Janet Yellen's Testimony On The Economy

 

SAM RO

Federal Reserve Board Chair Janet Yellen is presenting her economic outlook to the Joint Economic Committee in Washington, D.C., today.

For the most part, she's been sticking to the Fed's script of noting problems in the labor market and reiterating that rates would be low for a long time. But everyone's flagging what she's said about housing in her prepared remarks.

One cautionary note, though, is that readings on housing activity—a sector that has been recovering since 2011—have remained disappointing so far this year and will bear watching ...

... the recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery ...

TD Securities' Millan Mulraine characterized this as "an important departure from the past upbeat tone on the economic outlook."

Lately, various housing-market metrics such as existing-home sales, new-home sales, and mortgage applications have all been flagging. Last week, we learned that the U.S. homeownership rate was at a 19-year low, and some experts think it'll never come back.

"[T]he Fed is beginning to recognize that the biggest drop in affordability in more than 30 years is a serious drag on activity," said Pantheon Macroeconomics' Ian Shepherdson.

It's Not All Bad

The bad stuff going on in the housing market is really only just half the story.

In a new blog post on Calculated Risk, economist Bill McBride highlights nine things going right in the housing market. Among them he notes sales of distressed homes are declining, mortgage delinquenices are down sharply, mortgage credit is so tight it can only get looser, and the percent of homeowners in negative equity is tumbling.

"The fading of the housing recovery is mainly due to two factors; the effects of the severe weather and last year’s rise in mortgage rates," noted Capital Economics' Paul Dales. "With the weather returning to normal and mortgage rates having fallen back a bit, the housing recovery will come back to life before long."

Everyone Agrees This Past Winter Was Terrible

Before she warned about housing, Yellen blamed the harsh winter weather for GDP in the first quarter essentially grinding to a halt.

"With the harsh winter behind us, many recent indicators suggest that a rebound in spending and production is already under way, putting the overall economy on track for solid growth in the current quarter," Yellen said.

As such, her comments on housing are definitely worth flagging because she seems to have doubts that warm weather will put the market back on track.

"It is notable that the pending home sales index rebounded sharply in March and, while mortgage applications remain weak, the value of actual mortgage lending has started to rebound in recent weeks," said Capital Economics' Paul Ashworth. "Accordingly, we don't share Yellen's pessimism and expect a rebound in residential investment starting in the current quarter."

For those watching interest rates, it may be too early to conclude that Yellen is about to change course of monetary policy.

"Although this language is likely viewed as dovish, we do not believe that it suggests a later start to the Fed's rate hike cycle nor a slower pace to the speed of that cycle than is currently evident in the FOMC's forecasts provided in March," said UBS's Drew Matus.

For now, we'll all just have to hope that Yellen's cautious tone is just that.

Read more: http://www.businessinsider.com/janet-yellen-warns-about-housing-2014-5#ixzz313AQhEPw

ZERVOS: Janet Yellen Just Gave One Of The Most Dovish Speeches Ever Given By A Fed Official

By JOE WEISENTHAL

Janet Yellen just gave a speech, which is being interpreted as dovish.

Cardiff Garcia at FT Alphaville isolates the key points she made in her speech, but basically she says there's still ton of slack still in the labor market, and she lists several points of evidence in favor of that idea.

David Zervos of Jefferies — in his typically restrained manner — says this speech ends any debate about where Yellen stands:

Ok, I just read Janet's speech in Chicago today. Holy dovish deepdish pizza batman!! I have no recollection of a Fed Chair's speech where the lives of three down-on-their-luck job seeking individuals were discussed in detail. This is one loving and caring Fed Chair - I must send her a "no haters" hat immediately! If anyone doubts Janet's commitment to fighting for more job creation - read the tape. If anyone doubts Janet's belief that there is excessive slack in labor markets - read the tape. And if anyone doubt's Janet conviction that there are no material inflation risks on the horizon - read the tape. This could be one of the most dovish speeches I have ever read from a Federal Reserve official.

And since you're here, here's the whole speech from Yellen:

I am here today to talk about what the Federal Reserve is doing to help our nation recover from the financial crisis and the Great Recession, the effects of which were particularly severe for the people and the communities you serve.

Part of that effort has involved strengthening the financial system. New rules are in place to better protect consumers and ensure that credit is available to help communities grow. The Federal Reserve also plays a role in communities by fostering dialogue that promotes community development. I will highlight some initiatives around the Federal Reserve System that I believe are making a real difference. Later today, I will visit the Manufacturing Technology Program at Daley College, on Chicago's south side, where adult students are acquiring the skills they need to connect to good-paying jobs in that sector.

The Fed supports the work you do in communities because you make a difference. You help ensure that credit is available for families to buy homes and for small businesses to expand. Your organizations sponsor programs that help make communities safer and families healthier and more financially secure. One of the most important things you do is to help people meet the demands of finding a job in what remains a challenging economy. And that help is crucial, but I also believe it can't succeed without two other things.

The first of these is the courage and determination of the people you serve. The past six years have been difficult for many Americans, but the hardships faced by some have shattered lives and families. Too many people know firsthand how devastating it is to lose a job at which you had succeeded and be unable to find another; to run through your savings and even lose your home, as months and sometimes years pass trying to find work; to feel your marriage and other relationships strained and broken by financial difficulties. And yet many of those who have suffered the most find the will to keep trying. I will introduce you to three of these brave men and women, your neighbors here in the great city of Chicago. These individuals have benefited from just the kind of help from community groups that I highlighted a moment ago, and they recently shared their personal stories with me.

It might seem obvious, but the second thing that is needed to help people find jobs...is jobs. No amount of training will be enough if there are not enough jobs to fill. I have mentioned some of the things the Fed does to help communities, but the most important thing we do is to use monetary policy to promote a stronger economy. The Federal Reserve has taken extraordinary steps since the onset of the financial crisis to spur economic activity and create jobs, and I will explain why I believe those efforts are still needed.

The Fed provides this help by influencing interest rates. Although we work through financial markets, our goal is to help Main Street, not Wall Street. By keeping interest rates low, we are trying to make homes more affordable and revive the housing market. We are trying to make it cheaper for businesses to build, expand, and hire. We are trying to lower the costs of buying a car that can carry a worker to a new job and kids to school, and our policies are also spurring the revival of the auto industry. We are trying to help families afford things they need so that greater spending can drive job creation and even more spending, thereby strengthening the recovery.

When the Federal Reserve's policies are effective, they improve the welfare of everyone who benefits from a stronger economy, most of all those who have been hit hardest by the recession and the slow recovery.

Now let me offer my view of the state of the recovery, with particular attention to the labor market and conditions faced by workers. Nationwide, and in Chicago, the economy and the labor market have strengthened considerably from the depths of the Great Recession. Since the unemployment rate peaked at 10 percent in October 2009, the economy has added more than 7-1/2 million jobs and the unemployment rate has fallen more than 3 percentage points to 6.7 percent. That progress has been gradual but remarkably steady--February was the 41st consecutive month of payroll growth, one of the longest stretches ever.

Chicago, as you all know, was hit harder than many areas during the recession and remains a tougher market for workers. But there has been considerable improvement here also. Unemployment in the city of Chicago is down from a peak of nearly 13 percent to about 9-1/2 percent at last count. That is about the same improvement as in the larger Chicago metro area, where unemployment has fallen to 8-1/2 percent. Metro Chicago has added 183,000 jobs since 2009, just below the rate for job gains nationwide.1 

But while there has been steady progress, there is also no doubt that the economy and the job market are not back to normal health. That will not be news to many of you, or to the 348,000 people in and around Chicago who were counted as looking for work in January.2 It will not be news to consumers or to owners of small and medium-sized businesses, who surveys say remain cautious about the strength and durability of the recovery.

The recovery still feels like a recession to many Americans, and it also looks that way in some economic statistics. At 6.7 percent, the national unemployment rate is still higher than it ever got during the 2001 recession. That is also the case in Chicago and in many other cities. It certainly feels like a recession to many younger workers, to older workers who lost long-term jobs, and to African Americans, who are facing a job market today that is nearly as tough as it was during the two downturns that preceded the Great Recession.

In some ways, the job market is tougher now than in any recession. The numbers of people who have been trying to find work for more than six months or more than a year are much higher today than they ever were since records began decades ago. We know that the long-term unemployed face big challenges. Research shows employers are less willing to hire the long-term unemployed and often prefer other job candidates with less or even no relevant experience.3 

That is what Dorine Poole learned, after she lost her job processing medical insurance claims, just as the recession was getting started. Like many others, she could not find any job, despite clerical skills and experience acquired over 15 years of steady employment. When employers started hiring again, two years of unemployment became a disqualification. Even those needing her skills and experience preferred less qualified workers without a long spell of unemployment. That career, that part of Dorine's life, had ended.

For Dorine and others, we know that workers displaced by layoffs and plant closures who manage to find work suffer long-lasting and often permanent wage reductions.4Jermaine Brownlee was an apprentice plumber and skilled construction worker when the recession hit, and he saw his wages drop sharply as he scrambled for odd jobs and temporary work. He is doing better now, but still working for a lower wage than he earned before the recession.

Vicki Lira lost her full-time job of 20 years when the printing plant she worked in shut down in 2006. Then she lost a job processing mortgage applications when the housing market crashed. Vicki faced some very difficult years. At times she was homeless. Today she enjoys her part-time job serving food samples to customers at a grocery store but wishes she could get more hours.

Vicki Lira is one of many Americans who lost a full-time job in the recession and seem stuck working part time. The unemployment rate is down, but not included in that rate are more than seven million people who are working part time but want a full-time job. As a share of the workforce, that number is very high historically.

I have described the experiences of Dorine, Jermaine, and Vicki because they tell us important things that the unemployment rate alone cannot. First, they are a reminder that there are real people behind the statistics, struggling to get by and eager for the opportunity to build better lives. Second, their experiences show some of the uniquely challenging and lasting effects of the Great Recession. Recognizing and trying to understand these effects helps provide a clearer picture of the progress we have made in the recovery, as well as a view of just how far we still have to go.

And based on the evidence available, it is clear to me that the U.S. economy is still considerably short of the two goals assigned to the Federal Reserve by the Congress. The first of those goals is maximum sustainable employment, the highest level of employment that can be sustained while maintaining a stable inflation rate. Most of my colleagues on the Federal Open Market Committee and I estimate that the unemployment rate consistent with maximum sustainable employment is now between 5.2 percent and 5.6 percent, well below the 6.7 percent rate in February.

The other goal assigned by the Congress is stable prices, which means keeping inflation under control. In the past, there have been times when these two goals conflicted--fighting inflation often requires actions that slow the economy and raise the unemployment rate. But that is not a dilemma now, because inflation is well below 2 percent, the Fed's longer-term goal.

The Federal Reserve takes its inflation goal very seriously. One reason why I believe it is appropriate for the Federal Reserve to continue to provide substantial help to the labor market, without adding to the risks of inflation, is because of the evidence I see that there remains considerable slack in the economy and the labor market. Let me explain what I mean by that word "slack" and why it is so important.

Slack means that there are significantly more people willing and capable of filling a job than there are jobs for them to fill. During a period of little or no slack, there still may be vacant jobs and people who want to work, but a large share of those willing to work lack the skills or are otherwise not well suited for the jobs that are available. With 6.7 percent unemployment, it might seem that there must be a lot of slack in the U.S. economy, but there are reasons why that may not be true.

One important reason relates to the skills and education of people in the workforce. It is no secret that America faces some daunting challenges in educating people and preparing them to work in a 21st century, globalized economy. Many of you in this audience are helping workers address this challenge, but you also know that the economy continues to change very rapidly.

To the extent that people who desire to work lack the skills that employers are demanding, there is less slack in the labor market. This is an example of what economists call "structural" unemployment, and it can be difficult to solve. Even understanding what workers need to appeal to employers is difficult in a fast-changing economy. For government, effective solutions for structural unemployment, beginning with improved education, tend to be expensive and take a long time to work. The problem goes deeper than simply a lack of jobs.

But a lack of jobs is the heart of the problem when unemployment is caused by slack, which we also call "cyclical unemployment." The government has the tools to address cyclical unemployment. Monetary policy is one such tool, and the Federal Reserve has been actively using it to strengthen the recovery and create jobs, which brings me to why the amount of slack is so important.

If unemployment were mostly structural, if workers were unable to perform the jobs available, then the Federal Reserve's efforts to create jobs would not be very effective. Worse than that, without slack in the labor market, the economic stimulus from the Fed could put attaining our inflation goal at risk. In fact, judging how much slack there is in the labor market is one of the most important questions that my Federal Reserve colleagues and I consider when making monetary policy decisions, because our inflation goal is no less important than the goal of maximum employment.

This is not just an academic debate. For Dorine Poole, Jermaine Brownlee, and Vicki Lira, and for millions of others dislocated by the Great Recession who continue to struggle, the cause of the slow recovery is enormously important. As I said earlier, the powerful force that sustains them and others who keep trying to succeed in this recovery is the faith that their job prospects will improve and that their efforts will be rewarded.

Now let me explain why I believe there is still considerable slack in the labor market, why I think there is room for continued help from the Fed for workers, and why I believe Dorine Poole, Jermaine Brownlee, and Vicki Lira are right to hope for better days ahead.

One form of evidence for slack is found in other labor market data, beyond the unemployment rate or payrolls, some of which I have touched on already. For example, the seven million people who are working part time but would like a full-time job. This number is much larger than we would expect at 6.7 percent unemployment, based on past experience, and the existence of such a large pool of "partly unemployed" workers is a sign that labor conditions are worse than indicated by the unemployment rate. Statistics on job turnover also point to considerable slack in the labor market. Although firms are now laying off fewer workers, they have been reluctant to increase the pace of hiring. Likewise, the number of people who voluntarily quit their jobs is noticeably below levels before the recession; that is an indicator that people are reluctant to risk leaving their jobs because they worry that it will be hard to find another. It is also a sign that firms may not be recruiting very aggressively to hire workers away from their competitors.

A second form of evidence for slack is that the decline in unemployment has not helped raise wages for workers as in past recoveries. Workers in a slack market have little leverage to demand raises. Labor compensation has increased an average of only a little more than 2 percent per year since the recession, which is very low by historical standards.5 Wage growth for most workers was modest for a couple of decades before the recession due to globalization and other factors beyond the level of economic activity, and those forces are undoubtedly still relevant. But labor market slack has also surely been a factor in holding down compensation. The low rate of wage growth is, to me, another sign that the Fed's job is not yet done.

A third form of evidence related to slack concerns the characteristics of the extraordinarily large share of the unemployed who have been out of work for six months or more. These workers find it exceptionally hard to find steady, regular work, and they appear to be at a severe competitive disadvantage when trying to find a job. The concern is that the long-term unemployed may remain on the sidelines, ultimately dropping out of the workforce. But the data suggest that the long-term unemployed look basically the same as other unemployed people in terms of their occupations, educational attainment, and other characteristics. And, although they find jobs with lower frequency than the short-term jobless do, the rate at which job seekers are finding jobs has only marginally improved for both groups. That is, we have not yet seen clear indications that the short-term unemployed are finding it increasingly easier to find work relative to the long-term unemployed. This fact gives me hope that a significant share of the long-term unemployed will ultimately benefit from a stronger labor market.

A final piece of evidence of slack in the labor market has been the behavior of the participation rate--the proportion of working-age adults that hold or are seeking jobs. Participation falls in a slack job market when people who want a job give up trying to find one. When the recession began, 66 percent of the working-age population was part of the labor force. Participation dropped, as it normally does in a recession, but then kept dropping in the recovery. It now stands at 63 percent, the same level as in 1978, when a much smaller share of women were in the workforce. Lower participation could mean that the 6.7 percent unemployment rate is overstating the progress in the labor market.

One factor lowering participation is the aging of the population, which means that an increasing share of the population is retired. If demographics were the only or overwhelming reason for falling participation, then declining participation would not be a sign of labor market slack. But some "retirements" are not voluntary, and some of these workers may rejoin the labor force in a stronger economy. Participation rates have been falling broadly for workers of different ages, including many in the prime of their working lives. Based on the evidence, my own view is that a significant amount of the decline in participation during the recovery is due to slack, another sign that help from the Fed can still be effective.

Since late 2008, the Fed has taken extraordinary steps to revive the economy. At the height of the crisis, we provided liquidity to help avert a collapse of the financial system, which enabled banks and other institutions to continue to provide credit to people and businesses depending on it. We cut short-term interest rates as low as they can go and indicated that we would keep them low for as long as necessary to support a stronger economic recovery. And we have been purchasing large quantities of longer-term securities in order to put additional downward pressure on longer-term interest rates--the rates that matter to people shopping for a new car, looking to buy or renovate a home, or expand a business. There is little doubt that without these actions, the recession and slow recovery would have been far worse.

These different measures have the same goal--to encourage consumers to spend and businesses to invest, to promote a recovery in the housing market, and to put more people to work. Together they represent an unprecedentedly large and sustained commitment by the Fed to do what is necessary to help our nation recover from the Great Recession. For the many reasons I have noted today, I think this extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policymakers at the Fed.

In this context, recent steps by the Fed to reduce the rate of new securities purchases are not a lessening of this commitment, only a judgment that recent progress in the labor market means our aid for the recovery need not grow as quickly. Earlier this month, the Fed reiterated its overall commitment to maintain extraordinary support for the recovery for some time to come.

This commitment is strong, and I believe the Fed's policies will continue to help sustain progress in the job market. But the scars from the Great Recession remain, and reaching our goals will take time. In the meanwhile, the Federal Reserve will continue to expand its efforts to promote community development. The Board and each of the 12 Reserve Banks have community development staff members who focus on improving the availability of financial services in low- and moderate-income communities. They help bankers comply with the Community Reinvestment Act, but they are also a source of research and a facilitator of communication among financial institutions and practitioners to identify and share best practices.

This conference is one example of how the Fed pursues those goals, and I would like to mention a few of the Fed's other community development initiatives that I find particularly promising. In 2012, The Federal Reserve Bank of San Francisco partnered with the Low Income Investment Fund (LIIF), a community development financial institution that bridges the gap between low-income neighborhoods and private capital sources, to publish the book Investing in What Works for America's Communities. This book cited innovative and effective community development initiatives across the country and advocated for a "Community Quarterback" model to coordinate initiatives and better leverage funding among groups with similar goals.

In a similar way, the Federal Reserve Bank of Boston has been the catalyst for the Working Cities Challenge, inspired by its own research on cities that managed to diversify away from a declining, manufacturing-based economy. The research found that one key to success is "collaborative leadership," when governments, businesses, and nonprofits unite behind one focused approach. The Working Cities Challenge promotes that principle by inviting smaller Massachusetts cities to consider how they would use collaborative leadership to unite their communities to address a major challenge for lower-income residents. Twenty cities competed for $1.8 million in funding from the state and other sources. Six cities were awarded funds this past January, but many more will benefit from the spread of a new approach to capacity building that Fed research shows helps communities thrive.

Leadership recruitment is also at the heart of a grassroots-oriented program called Economic Avenue that was developed by the Kansas City Fed. In Northeast Kansas City, Kansas, residents and neighborhood leaders are forming a leadership council that will have responsibility for managing the program, which aims to create and grow local businesses, create jobs, and promote homeownership. The bank's community development staff is providing education and training to get the council off the ground, will measure and evaluate its progress, and assist in connecting leaders to resources and other programs.

These examples are just a few among many throughout the Federal Reserve System. By testing ideas, developing better measurement tools, convening interested parties, and sharing the Federal Reserve's skills and knowledge with our partners at the national and local levels, we aim to serve as a catalyst to improve lives.

Through these initiatives, together with the use of monetary policy and steps to safeguard the financial system, the Federal Reserve is committed to strengthening communities and restoring a healthy economy that benefits all Americans. It is my hope that the courageous and determined working people I have told you about today, and millions more, will get the chance they deserve to build better lives.

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