janet l yellen : semiannual monetary policy report to the congress testimony by ms janet l yellen, chair of the board of governors of the federal reserve system, before the committee on banking, housing, and urban affairs, us senate, washington dc, 24 february 2015. * * * chairman shelby, ranking member brown, and members of the committee, i am pleased to present the federal reserve ’ s semiannual monetary policy report to the congress. in my remarks today, i will discuss the current economic situation and outlook before turning to monetary policy. current economic situation and outlook since my appearance before this committee last july, the employment situation in the united states has been improving along many dimensions. the unemployment rate now stands at 5. 7 percent, down from just over 6 percent last summer and from 10 percent at its peak in late 2009. the average pace of monthly job gains picked up from about 240, 000 per month during the first half of last year to 280, 000 per month during the second half, and employment rose 260, 000 in january. in addition, long - term unemployment has declined substantially, fewer workers are reporting that they can find only part - time work when they would prefer full - time employment, and the pace of quits – often regarded as a barometer of worker confidence in labor market opportunities – has recovered nearly to its pre - recession level. however, the labor force participation rate is lower than most estimates of its trend, and wage growth remains sluggish, suggesting that some cyclical weakness persists. in short, considerable progress has been achieved in the recovery of the labor market, though room for further improvement remains. at the same time that the labor market situation has improved, domestic spending and production have been increasing at a solid rate. real gross domestic product ( gdp ) is now estimated to have increased at a 3 – 3 / 4 percent annual rate during the second half of last year. while gdp growth is not anticipated to be sustained at that pace, it is expected to be strong enough to result in a further gradual decline in the unemployment rate. consumer spending has been lifted by the improvement in the labor market as well as by the increase in household purchasing power resulting from the sharp drop in oil prices. however, housing construction continues to lag ; activity remains well below levels we judge could be supported in the longer run by population growth and the likely rate of household formation. despite the overall improvement in the u. s. economy and the u.

in a range of surveys of households and professional forecasters have thus far remained stable. however, inflation compensation, as calculated from the yields of real and nominal treasury securities, has declined. as best we can tell, the fall in inflation compensation mainly reflects factors other than a reduction in longer - term inflation expectations. the committee expects inflation to decline further in the near term before rising gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate, but we will continue to monitor inflation developments closely. monetary policy i will now turn to monetary policy. the federal open market committee ( fomc ) is committed to policies that promote maximum employment and price stability, consistent with our mandate from the congress. as my description of economic developments indicated, our economy has made important progress toward the objective of maximum employment, reflecting in part support from the highly accommodative stance of monetary policy in recent years. in light of the cumulative progress toward maximum employment and the substantial improvement in the outlook for labor market conditions – the stated objective of the committee ’ s recent asset purchase program – the fomc concluded that program at the end of october. even so, the committee judges that a high degree of policy accommodation remains appropriate to foster further improvement in labor market conditions and to promote a return of inflation toward 2 percent over the medium term. accordingly, the fomc has continued to maintain the target range for the federal funds rate at 0 to 1 / 4 percent and to keep the federal reserve ’ s holdings of longer - term securities at their current elevated level to help maintain accommodative financial conditions. the fomc is also providing forward guidance that offers information about our policy outlook and expectations for the future path of the federal funds rate. in that regard, the committee judged, in december and january, that it can be patient in beginning to raise the federal funds rate. this judgment reflects the fact that inflation continues to run well below the committee ’ s 2 percent objective, and that room for sustainable improvements in labor market conditions still remains. the fomc ’ s assessment that it can be patient in beginning to normalize policy means that the committee considers it unlikely that economic conditions will warrant an increase in the target range for the federal funds rate for at least the next couple of fomc meetings. if economic conditions continue to improve, as the committee anticipates, the committee will at some point begin considering