JACKSON HOLE, Wyoming — If anyone thought Janet Yellen might clarify her view of the U.S. job market in her speech here Friday, the Federal Reserve chair had a message:
The picture is still hazy.
Though the unemployment rate has steadily dropped, Yellen suggested that other gauges of the job market have become harder to assess and may reflect persistent weakness. These include many people jobless for more than six months, millions working part time who want full-time jobs and weak pay growth.
Yellen offered no clarity on the timing of the first interest-rate increase, which most economists still expect by mid-2015.
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Investors had been anticipating any firmer sign from Yellen about whether an improving economy might prompt the Fed to act sooner than expected to start raising rates. She instead offered further uncertainty.
Damage inflicted by the Great Recession had complicated the Fed’s ability to assess the U.S. job market and made it harder to determine when to adjust rates, Yellen said.
“Uncertainty is the key word,” said Ian Shepherdson, chief economist at Pantheon Economics. “Yellen is not about to leap from the fence at the next (Fed) meeting.”
Yellen said that for now, a broad assessment of the job market suggests that the economy still needs Fed support in the form of ultra-low rates and that inflation has yet to become a concern.
“The assessment of labor-market slack is rarely simple and has been especially challenging recently,” Yellen said at the conference, which the Federal Reserve Bank of Kansas City sponsors each year at a lodge beside the Grand Tetons.
She invoked language the Fed has used that record-low short-term rates will likely remain appropriate for a “considerable time” after the Fed stops buying bonds to keep long-term rates down. The bond buying is set to end this fall.
Yellen stressed that the Fed’s rate decisions will be dictated by the economy’s performance.
“Monetary policy is not on a preset course,” she said.
John Silvia, chief economist at Wells Fargo, said Yellen’s remarks confirmed his view that the Fed’s first rate increase will occur next June. “Yellen still wants more time to evaluate the data,” he said.
Silvia also said the speech hints that the Fed is “willing to take a little more inflation to achieve their labor market goals.” If inflation were to top the Fed’s target of 2 percent, “I don’t think they’re going to panic.”
Yellen’s comments came two days after release of the minutes of the Fed’s July 29-30 meeting. The minutes showed that officials engaged in an intensifying debate over whether to raise rates sooner than expected if the economy keeps strengthening.
Some officials, the minutes said, thought the Fed would need “to call for a relatively prompt move” to begin raising short-term rates from record lows, where it has kept them since the financial crisis struck in 2008. Otherwise, they felt the Fed risked overshooting its targets for unemployment and inflation.
In the end, the Fed made no changes at the July meeting. It approved, 9-1, maintaining its current stance on rates. But the minutes pointed to a distinct division among officials over the timing of an increase.
That debate continued at Jackson Hole, with Fed officials expressing clashing views during a series of TV interviews.
Charles Plosser, president of the Fed’s Philadelphia regional bank, said he was uncomfortable with the Fed’s policy statement that it expects to keep its key short-term rate unchanged for a “considerable time” after its bond purchases end. Plosser cast the lone dissenting vote at the July meeting.
Nicholas Colas, chief market strategist at the investment firm ConvergEx, said Yellen’s speech did nothing to change his expectation that the Fed will begin to raise rates in the second quarter of 2015.
“Janet Yellen is maintaining as much space for herself for policy flexibility as she possibly can,” Colas said. “She’s underlining how complex this is.”