JACKSON HOLE, Wyo. – If anyone thought Janet Yellen might clarify her view of the U.S. job market in her speech Friday, the Federal Reserve chair had a message:
The picture is still hazy.
Though the unemployment rate has steadily dropped, Yellen suggested that other gauges of the job market have become harder to assess and may reflect persistent weakness. These include many people jobless for more than six months, millions working part time who want full-time jobs and weak pay growth.
Yellen offered no clarity on the timing of the first interest rate increase, which most economists still expect by mid-2015.
Investors had been anticipating a firmer sign from Yellen about whether an improving economy might prompt the Fed to act sooner than expected to start raising rates. She instead offered further uncertainty. Damage inflicted by the recession had complicated the Fed's ability to assess the U.S. job market and made it harder to determine when to adjust rates, Yellen said.
“Uncertainty is the key word,” said Ian Shepherdson, chief economist at Pantheon Economics. “Yellen is not about to leap from the fence at the next (Fed) meeting.”
Yellen said that for now, a broad assessment of the job market suggests that the economy still needs Fed support in the form of ultralow rates and that inflation has yet to become a concern.
“The assessment of labor market slack is rarely simple and has been especially challenging recently,” Yellen said at the conference, which the Federal Reserve Bank of Kansas City sponsors each year at a lodge beside the majestic Grand Tetons.
Yellen invoked language the Fed has used that record-low short-term rates will likely remain appropriate for a “considerable time” after the Fed stops buying bonds to keep long-term rates down. The bond buying is set to end this fall.
Yellen stressed that the Fed's rate decisions will be dictated by the economy's performance. Repeating language from an appearance before Congress in July, Yellen said that if the economy improved faster than expected or if inflation heated up, rates could rise sooner. But she also said that if the economy underperformed, the Fed could delay its first rate increase.
“Monetary policy is not on a preset course,” she said.
In her keynote address, Yellen suggested that pay gains for U.S. workers, which have been sluggish since the recession ended five years ago, could rise faster without necessarily igniting inflation.
John Silvia, chief economist at Wells Fargo, said Yellen's remarks confirmed his view that the Fed's rate increase will occur next June.
“Yellen still wants more time to evaluate the data,” he said.
Silvia also said the speech hints that the Fed is “willing to take a little more inflation to achieve their labor market goals.” If inflation were to top the Fed's target of 2 percent, “I don't think they're going to panic.”