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Fed's cautious policy

August 22, 2014

Fed Chair Janet Yellen has indicated she would move cautiously in deciding about any future interest rate hike. She said developments on the US labor market should be analyzed more deeply to draw the right conclusions.

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Fed Chair Janet Yellen
Image: picture-alliance/AP Photo

In her opening address to the Federal Reserve's annual economic policy conference, Fed Chair Janet Yellen said in Jackson Hole, Wyoming, that US labor markets remain hampered by the long-term affects of recession.

She laid out in detail why she felt that the recent drop in the unemployment rate was not enough to reliably evaluate the strength of the US economy.

Yellen warned that despite the jobless rate having fallen faster than expected, the economic disruption of the last five years had left millions of workers sidelined or stuck in part-time jobs - facts that were not reflected in the unemployment rate alone.

She concluded that there would be no hasty decision to raise the Fed's benchmark interest rate, which the central bank had held near zero since December 2008. It had since reiterated it would wait a "considerable time" after winding down a stimulative bond-buying program in October before hiking interest rates. Financial markets currently expect rates to be raised around the middle of next year only.

Looking to Europe

Earlier on Friday, the president of the St. Louis Federal Reserve Bank, James Bullard, told Reuters on the sidelines of the Jackson Hole gathering he was concerned about Europe's sluggish economic upswing. He said 2014 was supposed to be a year of recovery, but it didn't look like it now against the background of slow growth and even renewed recession fears.

"If Europe as a whole goes into recession, it would be a serious issue from the perspective of US monetary policy," Bullard was quoted as saying.

"To me that's a flashing signal to the European Central bank that they need to take actions that are sufficient to reassure markets," he added with a view to what he felt were insufficient measures to avoid deflation in the bloc.

hg/sri (Reuters, AP)