Yellen: Federal Reserve stimulus cuts to continue

Samira Hussain reports on Janet Yellen's first testimony since joining the Fed.

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The new chair of the Federal Reserve, Janet Yellen, has said the bank will continue to cut its stimulus measures for the US economy.

If the US economy keeps improving, the bank would take "further measured steps" to reduce its support, she said.

In her first comments since taking over, Ms Yellen also signalled that interest rates would remain low.

Her testimony signals a continuation of the policies started under her predecessor, Ben Bernanke.

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"I have always been in favour of a predictable monetary policy that responds in a systematic way to economic variables," said Ms Yellen in response to questions from Jeb Hensarling, a Republican from Texas, who is the chair of the House Financial Services Committee.

While Ms Yellen noted the recent volatility in global financial markets, she said that at this stage it did not "not pose a substantial risk to the US economic outlook".

US markets reacted positively to her comments, with the three main share indexes trading higher after her remarks.

'Substantial progress'

Ms Yellen said there had been an improvement in the US jobs market, but added that the recovery was "far from complete".

While the US jobless rate had fallen, it still remained "well above levels" the Fed saw as consistent with maximum sustainable employment, she said.

She said that in assessing the health of the labour market, it was important to consider "more than the unemployment rate".

A mixed run of figures has raised questions over whether the US economy can sustain the strength it showed in the second half of 2013.

The unemployment rate has fallen to 6.6%, down from 7.9% a year ago, but the past two months have seen weak jobs growth, which Ms Yellen said had surprised her.

"Since the financial crisis and the depths of the recession, substantial progress has been made in restoring the economy to health," said Ms Yellen.

"Still, there is more to do."

'Moderately optimistic'

Many economists expect that the Fed's bond buying programme will be cut in $10bn (£6.1bn) monthly steps until purchases are eliminated.

The bond purchases were running at $85bn a month until December, since when there have been two reductions taking the figure to $65bn a month.

The purchases of Treasury and mortgage bonds have been aimed at stimulating the economy by keeping long-term borrowing rates low.

Overall, "there are no surprises" in Ms Yellen's testimony said Ward McCarthy, chief US economist at Jefferies.

"[Ms] Yellen is moderately optimistic about the state of the economy, but also acknowledges that the economy and labor market have a long way to go before attaining normalcy."

Mr McCarthy noted that in a departure, the House Financial Committee had scheduled a second round of testimony on Tuesday.

"The appearance of a second panel is an unprecedented development and, in our opinion, an unwarranted assault on Fed independence," he wrote in a note to clients.

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