Yellen strongly defends easy Fed policies, cites US labour slack

CHICAGO (REUTERS) - Federal Reserve Chair Janet Yellen gave a strong defense of the central bank's easy-money policies on Monday, saying its "extraordinary" commitment to boosting the economy, especially the still struggling labor market, will be needed for some time to come.

In her first public speech since becoming Fed chair two months ago, Yellen cited the struggles of three American workers in backing the policies of low interest rates and continued bond-buying. She said there remains "considerable" slack in the economy and job market, a sign that further monetary stimulus can still be effective.

"I think this extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policy-makers at the Fed," Yellen said at a community reinvestment conference.

The Fed, frustrated with the slow recovery from the 2007-2009 recession, has kept rates near zero for more than five years. It has said it will keep them there for a considerable time even after it ends a bond-buying program, which is to be wound down later this year.

In a speech that sounded political at times, Yellen, long concerned with the hardships of the unemployed and under-employed, said the US economy remains "considerably short" of the Fed's goals of maximum sustainable employment and stable inflation at 2 percent.

The "scars from the Great Recession remain, and reaching our goals will take time," she told about 1,100 people gathered at a downtown convention center here. "The recovery still feels like a recession to many Americans, and it also looks that way in some economic statistics." The US unemployment rate has dropped from a post-recession high of 10 percent in 2009 to 6.7 per cent last month, and has fallen more quickly than the Fed expected.

Yet that drop is due in part to the droves of Americans who have given up the search for work, setting up a debate over whether the Fed should keep up its stimulus in hopes that they will ever return again.

While some economists and more hawkish Fed officials believe there remains little so-called slack in the labor market, and that inflation will soon rise, Yellen gave a series of reasons why she does not believe that to be the case.

For one, she said, there is not yet evidence of worker compensation rising. And she pointed to the unexpectedly large proportion of part-time workers and long-term unemployed as reason to believe that further improvement in the labor market could draw people back into jobs, or into better jobs.

Taking a page from a politician's notebook, Yellen cited three workers who either lost their jobs or absorbed sharp pay cuts when the recession hit, including one who "scrambled for odd jobs and temporary work." "This is not just an academic debate," Yellen said at the at the 2014 National Interagency Community Reinvestment Conference.

"For Dorine Poole, Jermaine Brownlee, and Vicki Lira, and for millions of others dislocated by the Great Recession who continue to struggle, the cause of the slow recovery is enormously important."

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