WASHINGTON – Janet Yellen said Thursday that the U.S. economy has regained ground lost to Great Recession but still needs the Federal Reserve’s support because unemployment remains too high at 7.3 percent.
Yellen made those comments in testimony to the Senate Banking Committee, which is considering her nomination to be the next chairman of the Federal Reserve.
Her remarks suggest that she plans to stand by the Fed’s extraordinary low interest rate policies begun under current Chairman Ben Bernanke until the economy shows further improvement.
The Fed’s support of the recovery is the “surest path to returning to a more normal approach to monetary policy,” Yellen said during a two-hour hearing relatively free of tense moments.
Despite some tough questions from Republicans about the Fed’s policies, Yellen drew praise from members of both parties. Her nomination is expected to be advanced by the committee and confirmed later by the full Senate, making her the first woman to lead the powerful central bank.
“We have the utmost respect for you,” Sen. Joe Manchin, a centrist Democrat from West Virginia, told Yellen.
Sen. Bob Corker, R-Tenn., told Yellen that he appreciated her “candor and transparency,” and thanked her for giving him the same answers during the hearing as she had during a meeting with him in his office.
The Fed’s policies, which include three rounds of bond purchases, are credited with helping boost economic growth and lower unemployment. But they have also driven up stock prices and stoked worries about a greater risk of inflation and asset bubbles.
During the hearing, Yellen was pressed by Republicans to specify when the central bank might begin scaling back its $85 billion-per-month in bond purchases.
Yellen didn’t bite. She said Fed policymakers assess the risks and benefits of the bond purchase program each time they meet.
“The committee is looking for … signs of growth that are strong enough to promote continued progress” in the labor market, she said. “There is no set time that we will decide to reduce the pace of our purchases.”
Various Republicans expressed their concerns that the Fed’s massive bond purchases, which have pushed the central bank’s balance sheet to a record level of $3.8 trillion, have inflated stock prices and real estate.
“I think the economy has gotten used to the sugar you have put out there and I just worry that we are on a sugar high. That is a very dangerous thing,” said Sen. Mike Johanns, R-Neb.
Many economists believe the Fed will keep the purchase level unchanged at its upcoming meeting in December. Many say the Fed may not begin to scale back the program until its March meeting.