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Federal Reserve's Yellen says stimulus continues as US recovery is incomplete

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Federal Reserve's Yellen says stimulus continues as US recovery is incomplete
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In Washington, the world’s most powerful central banker has been explaining why more stimulus is needed.

Federal Reserve Chair Janet Yellen told lawmakers on a Senate committee that early signs of a pickup in inflation in the US are not enough for the Fed to accelerate its plans for raising interest rates: “Although the economy continues to improve, the recovery is not yet complete.”

In semi-annual testimony before the Senate Banking Committee, the Fed chair continued her focus on lagging labour force participation and weak wage growth saying that is key to any conclusions about the economy’s health.

“Too many Americans remain unemployed, inflation remains below our longer-run objective, and not all of the necessary financial reform initiatives have been completed. The Federal Reserve remains committed to employing all of its resources and tools to achieve its macroeconomic objectives.”

At the moment the cost of borrowing in the US is not expected to go up until the middle of next year, but Yellen said that could change, with interest rates rising sooner and faster, if data show labour markets improving more quickly than expected.

As she spoke there was upbeat news on US consumer spending which rose solidly in June added to signs of the economy’s strengthening fundamentals, which could buoy optimism the recovery is on a self-sustaining path.

The Commerce Department said core sales, which strip out automobiles, gasoline, building materials and food services, increased 0.6 percent last month after rising an upwardly revised 0.2 percent in May.

Core sales correspond most closely with the consumer spending component of gross domestic product. They were previously reported as being flat in May and economists expected them to rise 0.5 percent in June.

with Reuters