The economic expansion in the U.S. is expected to continue, with the labor market improving further, GDP growing moderately and inflation moving up to 2 percent over the next couple of years.
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This should happen despite disappointing Friday's labor market report, Fed Chair Janet Yellen said in a speech at The World Affairs Council of Philadelphia.
The current monetary policy stance is generally appropriate, in that it is providing support to the economy although the federal funds rate will probably need to rise gradually over time, Fed Chair added.
"So the overall labor market situation has been quite positive. In that context, this past Friday's labor market report was disappointing. Payroll gains were reported to have been much smaller in April and May than earlier in the year, averaging only about 80,000 per month.
"And while the unemployment rate was reported to have fallen further in May, that decline occurred not because more people had jobs but because fewer people reported that they were actively seeking work.
"A broader measure of labor market slack that includes workers marginally attached to the workforce and those working part-time who would prefer full-time work was unchanged.
"An encouraging aspect of the report, however, was that average hourly earnings for all employees in the nonfarm private sector increased 2-1/2 percent over the past 12 months - a bit faster than in recent years and a welcome indication that wage growth may finally be picking up.
Although this recent labor market report was, on balance, concerning, let me emphasize that one should never attach too much significance to any single monthly report.
"Other timely indicators from the labor market have been more positive. For example, the number of people filing new claims for unemployment insurance - which can be a good early indicator of changes in labor market conditions - remains quite low, and the public's perceptions of the health of the labor market, as reported in various consumer surveys, remain positive.
"While the economy has made great strides toward the FOMC's objective of maximum employment, somewhat less progress has been made toward our inflation objective. Inflation has run persistently below the Fed's goal of 2 percent over the past several years even as the labor market strengthened significantly.
"But speaking for myself, although the economy recently has been affected by a mix of countervailing forces, I see good reasons to expect that the positive forces supporting employment growth and higher inflation will continue to outweigh the negative ones. As a result, I expect the economic expansion to continue, with the labor market improving further and GDP growing moderately. And as I just noted, I expect to see inflation moving up to 2 percent over the next couple of years.
"My overall assessment is that the current stance of monetary policy is generally appropriate, in that it is providing support to the economy by encouraging further labor market improvement that will help return inflation to 2 percent. At the same time, I continue to think that the federal funds rate will probably need to rise gradually over time to ensure price stability and maximum sustainable employment in the longer run." ■