longer run. bis central bankers ’ speeches because the evolution of the economy is uncertain, policymakers need to carefully watch for signs that it is diverging from the baseline outlook and respond in a systematic way to stabilize the economy. accordingly, for both our purchases and our forward guidance, we have tried to communicate as clearly as possible how changes in the economic outlook will affect our policy stance. in doing so, we will help the public to better understand how the committee will respond to unanticipated developments, thereby reducing uncertainty about the course of unemployment and inflation. financial stability in addition to our monetary policy responsibilities, the federal reserve works to promote financial stability, focusing on identifying and monitoring vulnerabilities in the financial system and taking actions to reduce them. in this regard, the committee recognizes that an extended period of low interest rates has the potential to induce investors to “ reach for yield ” by taking on increased leverage, duration risk, or credit risk. some reach - for - yield behavior may be evident, for example, in the lower - rated corporate debt markets, where issuance of syndicated leveraged loans and high - yield bonds has continued to expand briskly, spreads have continued to narrow, and underwriting standards have loosened further. while some financial intermediaries have increased their exposure to duration and credit risk recently, these increases appear modest to date – particularly at the largest banks and life insurers. more generally, valuations for the equity market as a whole and other broad categories of assets, such as residential real estate, remain within historical norms. in addition, bank holding companies ( bhcs ) have improved their liquidity positions and raised capital ratios to levels significantly higher than prior to the financial crisis. moreover, recently concluded stress tests mandated by the dodd - frank act have provided a level of confidence in our assessment of how financial institutions would fare in an extended period of severely adverse macroeconomic conditions or a sharp steepening of the yield curve alongside a moderate recession. for the financial sector more broadly, leverage remains subdued and measures of wholesale short - term funding continue to be far below levels seen before the financial crisis. the federal reserve has also taken a number of regulatory steps – many in conjunction with other federal agencies – to continue to improve the resiliency of the financial system. most recently, the federal reserve finalized a rule implementing section 165 of the dodd - frank act to establish enhanced prudential standards for large banking firms in the form of riskbased and leverage capital

janet l yellen : the economic outlook testimony by ms janet l yellen, chair of the board of governors of the federal reserve system, before the joint economic committee, us congress, washington dc, 7 may 2014. * * * chairman brady, vice chair klobuchar, and other members of the committee, i appreciate this opportunity to discuss the current economic situation and outlook along with monetary policy before turning to some issues regarding financial stability. current economic situation and outlook the economy has continued to recover from the steep recession of 2008 and 2009. real gross domestic product ( gdp ) growth stepped up to an average annual rate of about 3 - 1 / 4 percent over the second half of last year, a faster pace than in the first half and during the preceding two years. although real gdp growth is currently estimated to have paused in the first quarter of this year, i see that pause as mostly reflecting transitory factors, including the effects of the unusually cold and snowy winter weather. with the harsh winter behind us, many recent indicators suggest that a rebound in spending and production is already under way, putting the overall economy on track for solid growth in the current quarter. one cautionary note, though, is that readings on housing activity – a sector that has been recovering since 2011 – have remained disappointing so far this year and will bear watching. conditions in the labor market have continued to improve. the unemployment rate was 6. 3 percent in april, about 1 - 1 / 4 percentage points below where it was a year ago. moreover, gains in payroll employment averaged nearly 200, 000 jobs per month over the past year. during the economic recovery so far, payroll employment has increased by about 8 - 1 / 2 million jobs since its low point, and the unemployment rate has declined about 3 - 3 / 4 percentage points since its peak. while conditions in the labor market have improved appreciably, they are still far from satisfactory. even with recent declines in the unemployment rate, it continues to be elevated. moreover, both the share of the labor force that has been unemployed for more than six months and the number of individuals who work part time but would prefer a full - time job are at historically high levels. in addition, most measures of labor compensation have been rising slowly – another signal that a substantial amount of slack remains in the labor market. inflation has been quite low even as the economy has continued to expand. some of the factors contributing to the softness in inflation over the past year, such