The end of January marked a changing of the guard at the Federal Reserve with Janet Yellen taking over the chairmanship from Ben Bernanke. Ms Yellen was a deputy chairman under Mr Bernanke and it has been widely anticipated that she will continue to steer the Fed in the direction that he had already determined upon. Speaking to the House Financial Committee for the first time as chairman of the Federal Reserve, Ms Yellen confirmed that this was indeed the case.
In the course of her testimony, Ms Yellen noted that the Taper will continue whilst the US economy continues to improve, in a series of "further measured steps" and that interest rates would remain low for the foreseeable future. The Taper has seen $20 billion cut out of the monthly asset purchase programme since December. The trigger for the Taper was (in the end) the reduction of US unemployment below the 7% mark, but job creation in December and January dropped well below the levels needed to match growth in the US workforce arising from population growth. This has led to speculation that the US recovery is stuttering and consequently that “Tapering” measures may be set aside. Unemployment has fallen from 7.9% a year ago to stand at 6.6% currently. She noted that the recovery of the US jobs market was “far from complete” and that unemployment was “well above levels” consistent with the Fed’s mandate to ensure maximum sustainable employment.
In her comments to the committee, Ms Yellen pointed out that: "(she has) always been in favour of a predictable monetary policy that responds in a systematic way to economic variables.” She noted: “Since the financial crisis and the depths of the recession, substantial progress has been made in restoring the economy to health. Still, there is more to do."
It is implicit in her comments that the “Taper” will continue as the extraordinary financial measures established to support the economy are gradually withdrawn, but this will be informed by the prevailing economic climate such as not to risk the still fragile recovery.