Federal Reserve Chair Janet Yellen has begun her semiannual monetary policy report to the U.S. Congress before the Committee on Financial Services of the U.S. House of Representatives in Washington, D.C. This used to be called the Humphrey-Hawkins testimony, and it is when Yellen gets to voice her opinions of what is coming ahead. Member of Congress also get to grill her on whatever topics they choose to do so.

Yellen’s primary points are that the economy has made further progress toward the Fed’s objective of maximum employment, while inflation has continued to run below the level that the Federal Open Market Committee (FOMC) judges to be most consistent over the longer run.

She noted that there is still some slack in labor markets and that wage growth continues to be relatively subdued. Yellen also noted concerns about Greece and China in her prepared statement.

Additional key points were as follows:

• Low oil prices and ongoing employment gains should continue to bolster consumer spending, financial conditions generally remain supportive of growth, and the highly accommodative monetary policies abroad should work to strengthen global growth.
• Some of the headwinds restraining economic growth (strong dollar and the effect of lower oil prices on capital spending) should diminish over time.
• The FOMC has judged that a high degree of monetary policy accommodation remains appropriate — we have continued to maintain the target range for the federal funds rate at 0 to 1/4 percent and have kept the Federal Reserve’s holdings of longer-term securities at their current elevated level to help maintain accommodative financial conditions.
• The stance of monetary policy will likely remain highly accommodative for quite some time after the first increase in the federal funds rate in order to support continued progress toward our objectives of maximum employment and 2 percent inflation.

As a reminder, the real fireworks in this semiannual testimony come from questions and answers rather than from the prepared statements. Hopefully Yellen will not talk about bubbles forming in social media and biotech stocks, but who knows.

FULL NOTES OF JANET YELLEN

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