12-05-2014, 08:02 AM
http://blogs.wsj.com/economics/2014/05/0...testimony/
10:00 am ET
May 7, 2014 BANKING
Five Takeaways From Fed Chairwoman Janet Yellen’s Testimony
ARTICLE
COMMENTS (5)
CONGRESS
EconOMY
FED
JANET YELLEN
TESTIMONY
U.S. EconOMY
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By VICTORIA MCGRANE
CONNECT
Federal Reserve Chairwoman Janet Yellen more or less sticks to the script in her prepared testimony before the congressional Joint Economic Committee Wednesday. She, for the most part, reiterated the views expressed by the Fed’s policy-making committee at its most recent meeting last week, though she hits harder on concerns about the slowing recovery in the housing market than the full group did. Here are five quick takeaways from those prepared remarks (her words in italics):
1) Ms. Yellen’s testimony makes clear that the Fed isn’t overly concerned about the dismal growth numbers that came in for the first quarter. “Although real GDP growth is currently estimated to have paused in the first quarter of this year, I see that pause as mostly reflecting transitory factors, including the effects of the unusually cold and snowy winter weather. With the harsh winter behind us, many recent indicators suggest that a rebound in spending and production is already under way, putting the overall economy on track for solid growth in the current quarter.”
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2) She does, however, sound a louder warning bell on the slowdown in the housing market than the Fed committee did last week. She highlights her worries about housing in two separate sections of the testimony: “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.” And later, underscoring the uncertainty of her upbeat outlook for the economy, she pointed to housing again: “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.”
3) Ms. Yellen also touched on the risk that the situation in Ukraine could pose to the world economy, though she doesn’t specifically reference the country, saying that “one prominent risk is that adverse developments abroad, such as heightened geopolitical tensions or an intensification of financial stresses in emerging market economies, could undermine confidence in the global recovery.”
4) It comes as no surprise, but Ms. Yellen still sees a lot of slack in the economy: “While conditions in the labor market have improved appreciably, they are still far from satisfactory … [B]oth the share of the labor force that has been unemployed for more than six months and the number of individuals who work part time but would prefer a full-time job are at historically high levels. In addition, most measures of labor compensation have been rising slowly—another signal that a substantial amount of slack remains in the labor market.”
5) Finally, Ms. Yellen swats down a list of concerns that the Fed’s policies could be fueling bubbles or other threats to financial stability, and touted the better liquidity and capital positions of the nation’s biggest financial firms. She said that while there is some evidence of investors reaching for yield, nothing has gotten too crazy: “While some financial intermediaries have increased their exposure to duration and credit risk recently, these increases appear modest to date – particularly at the largest banks and life insurers. More generally, valuations for the equity market as a whole and other broad categories of assets, such as residential real estate, remain within historical norms…. For the financial sector more broadly, leverage remains subdued and measures of wholesale short-term funding continue to be far below levels seen before the financial crisis.”
10:00 am ET
May 7, 2014 BANKING
Five Takeaways From Fed Chairwoman Janet Yellen’s Testimony
ARTICLE
COMMENTS (5)
CONGRESS
EconOMY
FED
JANET YELLEN
TESTIMONY
U.S. EconOMY
smaller
Larger
EmailPrint
By VICTORIA MCGRANE
CONNECT
Federal Reserve Chairwoman Janet Yellen more or less sticks to the script in her prepared testimony before the congressional Joint Economic Committee Wednesday. She, for the most part, reiterated the views expressed by the Fed’s policy-making committee at its most recent meeting last week, though she hits harder on concerns about the slowing recovery in the housing market than the full group did. Here are five quick takeaways from those prepared remarks (her words in italics):
1) Ms. Yellen’s testimony makes clear that the Fed isn’t overly concerned about the dismal growth numbers that came in for the first quarter. “Although real GDP growth is currently estimated to have paused in the first quarter of this year, I see that pause as mostly reflecting transitory factors, including the effects of the unusually cold and snowy winter weather. With the harsh winter behind us, many recent indicators suggest that a rebound in spending and production is already under way, putting the overall economy on track for solid growth in the current quarter.”
DOWNLOAD: Free WSJ eBook
2) She does, however, sound a louder warning bell on the slowdown in the housing market than the Fed committee did last week. She highlights her worries about housing in two separate sections of the testimony: “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.” And later, underscoring the uncertainty of her upbeat outlook for the economy, she pointed to housing again: “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.”
3) Ms. Yellen also touched on the risk that the situation in Ukraine could pose to the world economy, though she doesn’t specifically reference the country, saying that “one prominent risk is that adverse developments abroad, such as heightened geopolitical tensions or an intensification of financial stresses in emerging market economies, could undermine confidence in the global recovery.”
4) It comes as no surprise, but Ms. Yellen still sees a lot of slack in the economy: “While conditions in the labor market have improved appreciably, they are still far from satisfactory … [B]oth the share of the labor force that has been unemployed for more than six months and the number of individuals who work part time but would prefer a full-time job are at historically high levels. In addition, most measures of labor compensation have been rising slowly—another signal that a substantial amount of slack remains in the labor market.”
5) Finally, Ms. Yellen swats down a list of concerns that the Fed’s policies could be fueling bubbles or other threats to financial stability, and touted the better liquidity and capital positions of the nation’s biggest financial firms. She said that while there is some evidence of investors reaching for yield, nothing has gotten too crazy: “While some financial intermediaries have increased their exposure to duration and credit risk recently, these increases appear modest to date – particularly at the largest banks and life insurers. More generally, valuations for the equity market as a whole and other broad categories of assets, such as residential real estate, remain within historical norms…. For the financial sector more broadly, leverage remains subdued and measures of wholesale short-term funding continue to be far below levels seen before the financial crisis.”