Janet Yellen: Federal Reserve likely to keep 'tapering'

Janet Yellen, the new head of the Federal Reserve, said yesterday that while the recovery in the US employment market is "far from complete", the US central bank is likely to continue reducing or "tapering" its monthly bond-buying stimulus programme at a "measured" pace.

Ms Yellen, who faced a grilling from the House Financial Services Committee as she unveiled her first Monetary Policy Report, also indicated the Fed is likely to keep interest rates at near zero well past the point when unemployment falls below a previous threshold of 6.5 per cent.

Although January's US unemployment rate was 6.6 per cent, Ms Yellen stressed that the labour market's recovery "is far from complete".

She said those out of a job for more than six months continue to make up an unusually large fraction of the unemployed, and that the number of Americans working part time who would prefer a full-time job remains too high.

Crucially, she added: "These observations underscore the importance of considering more than the unemployment rate when evaluating the condition of the US labour market."

Some analysts saw this as a slight change in the Fed's criteria for returning interest rates to a higher level.

Under Ms Yellen's predecessor, Ben Bernanke, the Fed bought trillions of dollars worth of Treasury and mortgage bonds to help keep interest rates extraordinarily low and boost investment and markets following the recession of 2007-2009.

Following some improvements in the economy and employment, the Fed has reduced its purchases of treasury and mortgage bonds by $10bn (£6bn) a month in each of the last two months and currently buys at a monthly rate of $65bn.

Ms Yellen said: "If incoming information broadly supports the Federal Open Market Committee 's expectation of ongoing improvement in labour-market conditions and inflation moving back toward its longer-run objective, the committee will likely reduce the pace of asset purchases in further measured steps at future meetings.

"That said, purchases are not on a preset course, and the committee's decisions about their pace will remain contingent on its outlook for the labour market and inflation as well as its assessment of the likely efficacy and costs of such purchases."

As for how long interest rates will stay near zero, she said: "It likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5 per cent."