Yellen says medium-term full employment to back to America

Full employment is around the corner for the first time in the United States since the beginning of the crisis over two years ago, Federal Reserve Chair Janet Yellen said Wednesday.

Speaking in a dovish tone before the Economic Club of New York, Yellen reassured the public that the Fed has a "continuing commitment" to support the recovery.

Moderate growth continues

Amid increasing concerns raised by a bunch of disappointing data over whether the U.S. economic recovery has paused, Yellen told the audience that the Federal Open Market Committee (FOMC)'s current outlook for continued, moderate growth is little changed from last fall.

"Some notably weak indicators in recent months ... requiring us to judge whether the data are signaling a material change in the outlook, but the FOMC believes that a significant part of the recent softness was weather related," she said.

The minutes of the Fed's March monetary policy meeting released last week indicated that the FOMC predicted the unemployment rate to reach between 5.2 percent and 5.6 percent by the end of 2016 and inflation to stand between 1.7 percent and 2 percent.

If this forecast is reliable, the economy would be approaching maximum employment and price stability for the first time in nearly a decade, she said.

"I find this baseline outlook quite plausible," said the Fed's chief.

Inflation concerns

Speaking of the softness in inflation, Yellen warned that inflation persistently below 2 percent could pose risks to economic performance.

The latest data showed inflation in America was 0.2 percent in March, which is still well below the Fed's 2 percent longer-run objective.

"At very low inflation rates, adverse economic developments could more easily push the economy into deflation," she added.

Asked whether the Fed would let inflation go beyond 2 percent while the economy still needs support, Yellen said "with inflation running at around 1 percent, at this point I think the risk is greater that we should be worried about inflation undershooting our goal and getting inflation back up to 2 percent."

"We will remain very focused on removing the accommodation when the right time has come. I feel very confident that we have the tools to do that and also the commitment," She said, adding that overshooting the inflation goal can be very costly to reverse.

Changes to forward guidance

The Fed updated its forward guidance in its March meeting to drop the 6.5 percent unemployment rate as a threshold for considering hiking the ultra low federal funds rate, as the rate might soon cross the level.

In other words, the larger the shortfall of employment or inflation from their respective objectives, and the slower the projected progress toward those objectives, the longer the current target range for the federal funds rate is likely to be maintained, she explained.

"This approach underscores the continuing commitment of the FOMC to maintain the appropriate degree of accommodation to support the recovery," she said.

The new guidance also reaffirmed FOMC's view that decisions about liftoff should not be based on single indicator, instead, it will take into account a wide range of information on the labor market, inflation, and financial developments, she reaffirmed.