“Our objective in monetary policy is to continue to maintain an accommodative monetary policy for as long as necessary to see recovery of the labor market, to a state. It’s hard to know exactly how to characterize it quantitatively, but what the Federal Reserve now calls maximum employment, we used to call full employment and in many ways we are far from that.
And that is part of the reason why not only is there a shortage of jobs, but also, I think wages are rising as slowly as they are. Our mission is both to make sure that inflation moves back to our 2 percent objective, but also to want to foster continued recovery in the labor market to help Rhode Island and other places like it.”
My opinion: I watched the first hour or so of the testimony yesterday and the big statements that stuck out in my mind were about labor. Chairman Brady of the Joint Economic Committee ask some poignant questions about “moving the goal post”; or why the 6.5% unemployment rate statement was removed from the forward guidance.
Yellen pointed out that when the 6.5% was put in place the unemployment rate was near 9%. So it was basically a statement meant to show the market that it would be a substantial amount of time before the Fed considered raising interest rates.
However, I don’t think this point was a surprise as much as Yellen’s supporting facts about long-term unemployment and under-employment. As stated in the BLS report, long-term unemployment accounts for 35.3% of overall unemployment. That is a lot! And the number of under-employed people changed very little in April.
I know people like to hear what the overall unemployment rate is and its nice to see that declining; however, I think these two categories within unemployment are the narrower issues we should be having lengthy conversations about and addressing.