Yellen: 'Too many Americans remain unemployed'

By CNN News Wire

Published 02/11 2014 12:34PM

Updated 02/11 2014 12:36PM

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NEW YORK (CNNMoney) -- The Federal Reserve's leadership may have changed, but the message remains the same: The central bank plans to continue reducing its stimulus policy as the economy gradually improves, Janet Yellen said in prepared remarks.

Yellen, who was sworn in as Federal Reserve chair last week, stressed that she expects "a great deal of continuity" in Fed policy, following in the footsteps of previous Chairman Ben Bernanke.

 Like Bernanke, she pointed to ongoing concerns about the long-term unemployed, despite some progress made since the depths of the recession.

"The recovery in the labor market is far from complete," she said, pointing to a high number of workers who have been unemployed for more than six months, as well as a large number of part-time workers who would prefer to work full-time.

As of January, about 3.6 million Americans were unemployed for more than 6 months. They make up 36% of the unemployed. Another 7 million Americans were classified as "part-time for economic reasons," meaning they worked fewer than 35 hours a week due to slack work, unfavorable business conditions or inability to find a full-time job.

The Fed has been concerned about lingering long-term unemployment, and is still trying to aid the economy by buying billions in bonds each month in order to put pressure on long-term interest rates.

The hope is that by stimulating more borrowing and spending, lower interest rates can jumpstart the economy. The most obvious impact plays out in the housing market, where lower mortgage rates, fueled in part by the Fed's bond-buying spree, have been a large driver of the recovery over the last year.

 Since January, however, the Fed has gradually been reducing the pace of that stimulus. After buying $85 billion in bonds per month since September 2012, the Fed cut its purchases to $75 billion in January, and then to $65 billion in February.

In her testimony, Yellen is prepared to say the Fed plans to continue winding down the stimulus program "in further measured steps at future meetings." She also plans to reiterate that the Fed intends to keep its key interest rate near zero "well past the time" the unemployment rate falls to 6.5%.

In January, the unemployment rate neared that level, falling to 6.6%. But the Fed isn't likely to consider that a success: Much of the decline in the unemployment rate over the last three years has come from Americans dropping out of the labor force.

Meanwhile, inflation remains well below the Fed's goal of 2% per year.

"Too many Americans remain unemployed, inflation remains below our longer-run objective, and the work of making the financial system more robust has not yet been completed," Yellen said.

In her new role, Yellen is required to report to Congress twice a year -- a procedure that is required by the Humphrey Hawkins Act. She is scheduled to testify before the House Committee on Financial Services at 10 a.m. ET. She is also scheduled to deliver identical prepared remarks before the Senate Banking, Housing, and Urban Affairs Committee on Thursday.


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