US Fed Chairwoman talks of continuity in monetary policy in inaugural speech

In her inaugural speech as chairwoman of the US Federal Reserve, Janet Yellen on Tuesday made clear that she will maintain course on the Fed’s current monetary policy.

Yellen said she expects “a great deal of continuity” in monetary policy, which she helped formulate in her previous role as vice chair, she said in an appearance before the House Financial Services Committee.

That policy includes keeping interest rates at near zero since 2008, and what she called the “less traditional” tool of asset purchases.

Wall Street reacted by keeping its four-day rally going. The Dow Jones Industrial Average closed up 1.22 per cent at 15,994, a gain of 192.98 points on Tuesday. The S&P 500 and the Nasdaq indices also closed higher.

Yellen said the nation’s economic recovery gained greater traction in the second half of last year, pointing to 1.25 million new jobs added since the previous monetary policy report of July 2013, and 3.25 million new jobs since August 2012.

Even with those numbers, “the recovery in the labour market is far from complete,” she said.

Still, given the signs of gradual economic improvement, Yellen reiterated the Fed’s decision to taper its monthly asset purchases.

Yellen said she and her Fed colleagues “anticipate that economic activity and employment will expand at a moderate pace this year and next, the unemployment rate will continue to decline toward its longer-run sustainable level, and inflation will move back toward 2 per cent over coming years.” She went on to say that volatility in the global markets did not have her overly concerned.

“Our sense is that at this stage these developments do not pose a substantial risk to the U.S. economic outlook. We will, of course, continue to monitor the situation.”

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