Yellen: Housing remains a big concern
Tells Senate recovery remains fragile
Federal Reserve Chair Janet Yellen’s second day on Capitol Hill found her focusing on at least three economic vectors tied to housing – fiscal policy, job creation and the tapering of bond buying.
Yellen wasn’t as specific or blunt on Thursday before the Senate Banking Committee as she was on Wednesday before a congressional committee.
"Of course the recovery of the housing sector is very important. To see that ongoing is important to our recovery and has been a very important factor in the downturn," Yellen told senators.
On Wednesday, though she warned more strongly that housing is a headwind for the economy.
“One cautionary note, though, is that readings on housing activity – a sector that has been recovering since 2011 – have remained disappointing so far this year and will bear watching,” she said. “Another risk – domestic in origin – is that the recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery.”
On bond buying and the commitment to the tapering, Yellen held her ground.
"What we need to see in order to follow that plan is continued improvement in the labor market and an overall pattern of growth that is sufficient to cause us to project continued improvement,” she said. "Our objective is to make sure that the economy moves back to full employment or maximum employment, and we are making gradual progress....
"Whenever we meet we ask ourselves the question, 'do we continue to believe that the economy is on a path that will take us toward our objective of reaching full employment or maximum employment?' And we also think about inflation, which is running below our 2% objective and ask ourselves, 'does incoming evidence suggest that inflation will also be moving back up to 2% over time?” Yellen said. "If the answer to those two questions is 'yes,' we will continue to reduce the pace of our asset purchases.”
But she warned things can change.
"Now, if the economy outlook were to change in such a way that we no longer felt the answer to those questions was 'yes,' then we would reconsider our plans."
On the problem of jobs and wages, which has dragged on housing, Yellen said she wants to continue policies she sees as helping job growth.
"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,” she said. “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."