Janet Yellen, the Federal Reserve Chair spoke to community development professional in Chicago on Monday, March 31 and made it clear that for the health of the job market we need low interest rates for quite some time to get the market back on track. Even thought the Federal government is scaling back their monthly bond buying purchases later in the year, Yellen stressed that do not have plans to raise the short term rate at any time in the new future. The Fed purchasing the bonds has been in an effort to keep long-term interest rates as low as possible.
Yellen comforting the public in this way has put investors at ease. She was clearly indicating that the Fed does not have plans to raise short-term rates. Many investors feared that this would come up by the middle of next year. Yellen’s remarks indicate that there is more time before short-term rates are affected. The reasoning of the fed may be that a short-term increase would have big consequences for borrowing costs and stock prices. This was Yellen’s first major speech since taking the office of the Federal Reserve Chair and she stated that she thinks, “this extraordinary commitment is still needed and will be for some time, and I believe that view is widely held by my fellow policymakers at the Fed.”
Just after Yellen spoke at the conference stocks began to rise. At the close of the day Monday the Dow Jones industrial average was up 134 points. Yellen also noted during her speech that the U.S. job market is still not improving as fast as it should. Because of this less than stellar recovery the market needs low interest rates to encourage citizens to borrow and spend.