[Ed. – Previous reports of an end this fall appear to have been premature.]
Inflation also remains sluggish, suggesting that the economy continues to operate below capacity, and allowing the Fed to extend its stimulus campaign. “With wages growing slowly and raw material prices generally flat or moving downward, firms are not facing much in the way of cost pressures that they might otherwise try to pass on,” the Fed said in a report accompanying Ms. Yellen’s testimony.
But Ms. Yellen added that the Fed was ready to respond if it concluded that it had overestimated the slack in the labor market, a more substantial acknowledgment of the views of her critics than she has made in other recent remarks.
“If the labor market continues to improve more quickly than anticipated by the committee, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned,” Ms. Yellen told the Senate committee. “Conversely, if economic performance is disappointing, then the future path of interest rates likely would be more accommodative than currently anticipated.”
The Fed also remains watchful for signs of financial instability, Ms. Yellen said. Valuations in most sectors “remain generally in line with historical norms,” but there is evidence of overconfidence in sectors including junk bonds, she said. …
Ms. Yellen has said that concerns about financial stability are not sufficient, at present, to warrant a shift in the course of monetary policy.