Fed Chair Yellen Says Labor Market Recovery Far From Over, Calls Rising Debt-to-GDP Ratio Unsustainable

Dr. Janet Yellen testified yesterday before the House Financial Services Committee in her first public appearance on the Hill since being sworn in as Federal Reserve Chair. She spoke on a range of issues, including monetary policy and financial regulatory policy, but we will focus here on her remarks discussing the state of the U.S. economy and fiscal policy.

Yellen described an economy that is in the midst of a moderate recovery, with real gross domestic product (GDP) estimated to have grown at an average annual rate of over 3.5 percent in Q3 and Q4 of last year (compared to a 1.75% rate in Q1 and Q2), and with household and business spending growth increasing during the latter half of 2013. Nonetheless, she said that the labor-market recovery is far from over, with an unemployment rate that is above levels “consistent with maximum sustainable employment.” Yellen also pointed to the large number of long-term unemployed, as well the elevated number of people in part-time work, factors that she asserted “underscore the importance of considering more than the unemployment rate when evaluating the condition of the U.S. labor market.” She projected that economic and employment growth would continue at a moderate pace in coming years.

With regard to the growing debt burden faced by the U.S. government, she said that rising long-run deficits are “a trend that has a negative effect on the economy,” and that long-term projections, like the recent Congressional Budget Office report, suggest a debt-to-GDP ratio that “will be rising over time in a way that looks unsustainable.” Yellen concluded that these budgetary issues are “essential for Congress to address.”

Samantha Greene contributed to this post.