Federal Reserve Chairman Janet Yellen pledged to maintain her predecessor’s policies by scaling back stimulus in “measured steps” and signaled that the bar is high for a change in that plan.

Only a “notable change in the outlook” for the economy would prompt policy makers to slow the pace of tapering, Yellen said in response to a question today during testimony to the House Financial Services Committee. “It’s important for us to take our time to assess” the significance of recent reports showing payrolls expanded less than projected, she said.

Yellen, delivering her first public remarks as Fed chairman, said financial-market turmoil doesn’t pose a major risk to the outlook for the U.S. economy and repeated the Fed’s statement that asset purchases aren’t on a “pre-set course.”

While growth has picked up, “the recovery in the labor market is far from complete,” Yellen said earlier in prepared remarks. “I am committed to achieving both parts of our dual mandate: helping the economy return to full employment and returning inflation to 2 percent while ensuring that it does not run persistently above or below that level.”

David Fuller's view

Janet Yellen reassured people that the Fed’s policies of gradual QE tapering against a background of extremely lows short-term interest rates would continue.  The key comment for markets was in the last paragraph shown above, starting with, “the recovery in the labor market is far from complete.”

Labour markets in most developed economies are unlikely to recover to the extent that Janet Yellen and other central bankers are talking about because automation is replacing current jobs at a faster rate than new jobs can be created.  Consequently, reported declines in the percentage of people who are unemployed are falling mainly because fewer people are still trying to find jobs.  She will know this but if full employment remains the objective, based on the number of people who are employed rather than those still registered as unemployed, monetary policy could remain accommodative until inflation and/or government bond yields move higher.  A clear break above the September and December 2013 highs just above 3% for US 10-Yr Bonds will be a warning.