Yellen Upbeat on US Recovery but Says Risks Remain

Mil Arcega
May 07,2014

U.S. Federal Reserve Chair Janet Yellen was mostly upbeat on the U.S. economy in remarks before Congress Wednesday. Despite a harsh winter that slowed economic growth in the first quarter, Yellen says the world’s largest economy is on track for solid growth this year. But given continuing weakness in the labor market and geopolitical tensions abroad, Yellen says the recovery is far from certain.

The U.S. economy added nearly 300,000 jobs last month - the biggest gain in more than two years. But the pickup came after a disappointing start - with the U.S. economy barely growing between January and March.

In testimony before the Joint Economic Committee, Janet Yellen predicted a strong pickup for the rest of the year.

“Looking ahead, I expect that economic activity will expand at a somewhat faster pace this year than it did last year, that the unemployment rate will continue to decline gradually, and that inflation will begin to move up toward two percent," said Yellen.

But she said that does not mean the job is done for the U.S. central bank.

“Currently 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 economic recovery," she said.

The Fed has been reducing or “tapering” its monthly bond purchases that have kept interest rates at historic lows - from $85 billion five months ago to the current $45 billion per month.

Small business advocate John Arensmeyer says the pace is just about right for small businesses that still need low-interest capital to expand.

“There needs to be a long-term tapering at some point, but I think they’re moving slowly enough that they’re not doing damage to the recovery that we’ve seen over the last couple of years," said Yellen.

Quantitative easing - as it’s called - is on track to end by the fourth quarter of this year. But Yellen says borrowing rates will remain low for a “considerable time” - not just to fuel consumer spending and business expansion - but to bolster the recovery in the housing market which has faltered in recent months.