US Monetary Policy / The recovery in the labor market is far from complete says Yellen

Just because the unemployment rate is falling rapidly, don’t think for a minute that the economy is close to a full recovery.

That’s the message Janet Yellen delivered in her first appearance on Capitol Hill since she took the reins of the Federal Reserve. Follow along with MarketWatch’s live blog of Janet Yellen’s testimony.

Speaking to the House Financial Services Committee, the new chairwoman declared bluntly that the Fed won’t act just because the unemployment rate falls below 6.5%, as it is likely to do within the next few months. Read MarketWatch’s complete coverage of Yellen’s testimony.

Earlier, the Fed had drawn a line in the sand, saying that it would likely start to raise its interest-rate target above zero once the unemployment rate got to 6.5%. It wasn’t to be considered a hard trigger, meaning that the Fed would raise rates automatically once the jobless rate hit that threshold, but it would be a sign that rate hikes were coming soon.

That expectation is no longer valid. Hitting 6.5% won’t mean a thing to the Fed.

Yellen repeated what the Federal Open Market Committee had said in December and again in January: Near-zero interest rates will remain “well past the time” that unemployment drops below 6.5%. She might as well have underscored that phrase, put it into boldface, made it ALL CAPS. When she delivers her statement orally later today, she may want to pound the table when she says those words.

She means it: 6.5% don’t mean a thing. Because, in Yellen’s words, “The recovery in the labor market is far from complete.” Although 3.2 million jobs have been added since the Fed started its QE3 program of bond-buying, the labor market is still broken.

Specifically, Yellen mentioned the number of people who’ve been out of work longer than six months (3.6 million) and the number of people who would like a full-time job but who can only find part-time work (7.1 million). That’s a lot of “hidden unemployment” that makes the official unemployment rate just an interesting footnote, not an important milestone for policy.

Chosen excerpts by Job Market Monitor. Read the whole story at 6.5% unemployment rate doesn’t mean a thing to Yellen – MarketWatch First Take – MarketWatch.

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