Janet Yellen has said that Federal Reserve needs to maintain ‘a high degree’ of quantitative easing because there is still ‘significant slack’ in the labour market.
Addressing the Senate Banking Committee this afternoon, she said ‘a high degree of monetary stimulus remains appropriate’ in the face of a stuttering economic recovery.
Although the unemployment figure fell to a more than five year low of 6.1% in June, she said the number in work remains below target and wage growth remains sluggish.
‘Labour force participation appears weaker than one would expect based on the aging of the population and the level of unemployment,’ she said.
‘These and other indications that significant slack remains in labour markets are corroborated by the continued slow pace of growth in most measures of hourly compensation.’
She also acknowledged that keeping interest rates low encouraged investors to ‘reach for yield’, which could ‘increase vulnerabilities’ in the market.