Janet Yellen today took the stand in front of the Senate Banking Committee to answer questions about the Federal Reserve's monetary stimulus, the ongoing economic recovery, banking regulation, fiscal policy, and a host of other topics.
At the time of her previous semi-annual report — Yellen's first — the U.S. unemployment rate was 6.7 percent and inflation was 1.2 percent. The unemployment rate has since fallen to 6.1 percent and inflation has risen to 1.8 percent. That means that both are closer to the Fed's targets of 2 percent inflation and 5.5 percent unemployment.
But even with those signs of improvement, Yellen was pretty clear that the recovery is not complete. "Too many Americans remain unemployed, inflation remains below our longer-run objective, and not all of the necessary financial reform initiatives have been completed," she said. Yellen emphasized the dangers of allowing mass unemployment to persist, arguing that individuals "experience exceptional psychological trauma" when they become unemployed.
A number of senators also asked questions about economic bubbles. Sen. Tom Coburn (R-Okla.), for instance, argued that economic bubbles were being inflated because low interest rates were encouraging investors to take on risky investments. Yellen answered that that was a possibility and that the Fed was monitoring developments closely, but warned that "we're not going to be able to catch every asset bubble." She defended the ultra-low interest rate policy as "necessary" due to the economy "operating significantly short of its potential."