Yellen downplays weight of jobs report in rate hike
Federal Reserve Chair Janet Yellen on Thursday downplayed the significance of the November jobs report, due out Friday, as a factor in Fed policymakers' decision whether to lift interest rates this month for the first time in nearly 10 years.
Yellen told the Joint Economic Committee the Fed will review the report and that it primarily looks at the labor market and inflation as it considers rate hikes. But she added, "We can't overweight any particular number."
Economists expect Friday's report to show that employers added a healthy 200,000 jobs in November, but the monthly figures are volatile and subject to sometimes-large revisions. Employers have added a monthly average of 206,000 jobs this year.
Yellen said the labor market has made substantial progress since the Great Recession, with unemployment falling to 5% from 10%, and signaled the Fed is on track to raise interest rates from near-zero levels at a Dec. 15-16 meeting..
She said the economy largely has met the Fed's criteria for raising its benchmark rate -- further improvement in employment that would generate a rise in inflation to the Fed's annual 2% target.
"I currently judge that U.S. economic growth is likely to be sufficient over the next year or two to result in further improvement in the labor market," she said. Those gains "serve to bolster my confidence in the return of inflation to 2%" as the effects of low oil prices and a strong dollar that's pushing down import prices dissipate.
She acknowledged that the Fed has been hesitant to raise rates because it can respond more easily to rising inflation -- by pushing up rates more rapidly – than to negative shocks to the economy. The Fed's key rate has been near zero since the 2008 financial crisis.
But she said that if the Fed waits too long, it might have to bump up rates abruptly, risking a recession. Keeping rates low for an extended period also "could encourage excessive risk-taking and thus undermine financial stability," she said.
Yellen noted the unemployment rate has fallen to 5% from 10% in 2009 and solid consumer and business spending have offset a slowdown in exports tied to a strong dollar and weak global growth.
"The economy has come a long way toward (the Fed's) objectives of maximum employment and price stability," Yellen said. Raising rates "will be a testament, also, to how far the economy has come in recovering from the effects of the financial crisis and the Great Recession. In that sense, it is a day that I expect we all are looking forward to."
The Fed chief also reiterated her strong opposition to a bill recently passed by the House that would force the Fed to follow a formula, based on inflation and economic growth, to determine interest rates. Yellen such a rigid rule "would be extremely damaging," noting it would require the Fed to keep its current benchmark rate at about 2%. It's now near zero, a level that Yellen said has been necessary to lift the economy from the recession and spur job growth.
That requirement, along with a mandate in the legislation to audit the central bank's monetary policy decisions "threaten the independence of the Fed," she said.