Outgoing attitude brings approval

Federal Reserve chairwoman Janet Yellen speaks with student Baker Gregory as she tours the City Colleges of Chicago ''College to Careers Programme in Advanced Manufacturing''. Photo by Reuters.
Federal Reserve chairwoman Janet Yellen speaks with student Baker Gregory as she tours the City Colleges of Chicago ''College to Careers Programme in Advanced Manufacturing''. Photo by Reuters.

Markets are welcoming the ''fresh approach'' being taken by new Federal Reserve chairwoman Janet Yellen as she focuses on unemployment, Craigs Investment Partners broker Peter McIntyre says.

Dr Yellen says the US economy still needs the Fed's extraordinary support measures, noting that the falling jobless rate masks weaknesses in the jobs market.

In a speech in Chicago yesterday, highlighting slack in the labour market, Dr Yellen said the economy remained ''still considerably short'' of the Fed's goals of maximum sustainable employment and stable inflation.

Mr McIntyre said markets rallied after the speech because it gave certainty to the financial markets.

''There is a growing realisation the US recovery has stalled and Dr Yellen gave a `heads up' interest rates will reman at zero or close to zero for the foreseeable future,'' Mr McIntyre said.

''There is an old saying: 'Don't bet against the Fed'. If the Fed says rates will be 0% or 0.5% it pays to take notice.''

Dr Yellen had contacted out-of-work Americans and relayed their stories during the speech.

Mr McIntyre said the chairwoman was more outgoing than previous chairman Ben Bernanke and it was starting to show through.

While she could talk to huge corporations and wade through data, a lot of good anecdotal evidence about the ''real situation'' could be gained off the streets.

''These are the people on the street who need to be employed,'' he said.

Dr Yellen said in her speech while the official unemployment rate had fallen quickly over the past two years to 6.7%, the level remained deceptive.

She especially pointed to the high level of people unemployed for a long term, despite the economy's rebound from the Great Recession.

''While there has been steady progress, there is also no doubt that the economy and the job market are not back to normal health.

''The recovery still feels like a recession to many Americans, and it also looks that way in some economic statistics.''

''In some ways, the job market is tougher now than in any recession. The numbers of people who have been trying to find work for more than six months or more than a year are much higher today than they ever were since records began decades ago.''

Dr Yellen emphasised even though the Fed had begun reducing its huge bond purchase programme, the economy still needed its support, in the way of ultra-low interest rates and Fed programme for low-income communities.

Mr McIntyre said Dr Yellen reassured investors that the US central bank remained committed to bolstering the US jobs market, consumer spending, corporate investment and the nascent housing recovery.

The comments eased concern sparked earlier this month when she suggested US interest rates might rise as early as the first half of 2015.

The latest clues on the US labour market will be offered in the form of the ADP employment report tomorrow, followed by weekly jobless claims and the Government's monthly employment report on Friday.

In Australia, the Reserve Bank of Australia (RBA) is widely expected to keep the cash rate at its record low of 2.5%, but borrowers are being warned to brace for rate hikes next year.

The RBA was expected to leave the cash rate on hold for the first half of 2014, according to 13 economists surveyed by AAP, after its board meeting yesterday.

Westpac chief economist Bill Evans said the Australian economy was getting stronger and the weak labour market was expected to strengthen in 2015.

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