A few thoughts on a remarkable speech today by Fed chair Janet Yellen

In no particular order, let me touch on a few interesting elements of Federal Reserve Chair Janet Yellen’s speech today to the 2014 National Interagency Community Reinvestment Conference in Chicago.

1.) Real stories, and a new tone.

It’s hard to imagine Bernanke or Greenspan giving a speech that cites the real experiences of three Americans whose lives have been severely impacted by the 2007-2009 recession and the slow recovery since then.

From Yellen’s speech:

That is what Dorine Poole learned, after she lost her job processing medical insurance claims, just as the recession was getting started. Like many others, she could not find any job, despite clerical skills and experience acquired over 15 years of steady employment. When employers started hiring again, two years of unemployment became a disqualification. Even those needing her skills and experience preferred less qualified workers without a long spell of unemployment. That career, that part of Dorine’s life, had ended.

For Dorine and others, we know that workers displaced by layoffs and plant closures who manage to find work suffer long-lasting and often permanent wage reductions. Jermaine Brownlee was an apprentice plumber and skilled construction worker when the recession hit, and he saw his wages drop sharply as he scrambled for odd jobs and temporary work. He is doing better now, but still working for a lower wage than he earned before the recession.

Vicki Lira lost her full-time job of 20 years when the printing plant she worked in shut down in 2006. Then she lost a job processing mortgage applications when the housing market crashed. Vicki faced some very difficult years. At times she was homeless. Today she enjoys her part-time job serving food samples to customers at a grocery store but wishes she could get more hours.

Vicki Lira is one of many Americans who lost a full-time job in the recession and seem stuck working part time. The unemployment rate is down, but not included in that rate are more than seven million people who are working part time but want a full-time job. As a share of the workforce, that number is very high historically.

Now, I don’t necessarily even want this kind of personal touch from a Fed chair. It’s too easy to pick individual examples that can’t be generalized to convey broader truths, and the last thing the Fed needs to do is give the general public a sense that they’re making decisions based on anecdotes.

On the other hand, these examples do seem to reflect broader truths for workers of a certain age and certain skill sets.

2. Did we really need such a lengthy rationale for believing that there is still slack in the economy?

Yellen’s speech today was about 3,800 words. About 1,100 of those words were devoted to explaining why Yellen believes there is “slack” in the labor market. But that word count doesn’t even include the anecdotes above, which are part of the same lengthy passage.

That’s an awful lot of words simply to justify the pretty obvious fact that cyclical unemployment is still having a profound impact on the U.S. economy.

Here’s just one point in Yellen’s litany of reasons why we should believe there is slack in the labor market:

One form of evidence for slack is found in other labor market data, beyond the unemployment rate or payrolls, some of which I have touched on already. For example, the seven million people who are working part time but would like a full-time job. This number is much larger than we would expect at 6.7 percent unemployment, based on past experience, and the existence of such a large pool of “partly unemployed” workers is a sign that labor conditions are worse than indicated by the unemployment rate. Statistics on job turnover also point to considerable slack in the labor market. Although firms are now laying off fewer workers, they have been reluctant to increase the pace of hiring. Likewise, the number of people who voluntarily quit their jobs is noticeably below levels before the recession; that is an indicator that people are reluctant to risk leaving their jobs because they worry that it will be hard to find another. It is also a sign that firms may not be recruiting very aggressively to hire workers away from their competitors.

3. The markets liked the speech, but is it “dovish”?

The markets jumped today, and the well-received speech was described as “dovish” in a post at the WSJ’s MoneyBeat.

Indeed, Yellen made it clear that the Fed will continue to take steps to keep interest rates low to buoy investment and employment:

Earlier this month, the Fed reiterated its overall commitment to maintain extraordinary support for the recovery for some time to come.

This commitment is strong, and I believe the Fed’s policies will continue to help sustain progress in the job market.

But hold on there a second. Yellen mentions inflation risks, but never clearly says that the inflation rate has been running consistently below the Fed’s target.

So while Yellen talks about “extraordinary” support for the economy, it looks to me like the Fed is making very conservative choices. If the Fed really wanted to boost the economy quickly, there’s room to do so without risking overly high inflation.

At the current rate of improvement, we’ll likely be into 2016 before the unemployment rate is in the 5.2 to 5.6 percent range that Yellen suggests would represent something close to full employment. Even that number seems high, frankly — it represents I think a cynical view of the American workforce.

Despite Yellen’s attempt to show compassion for individual Americans, she did not today advocate — or even hint at — taking bolder steps to strengthen the labor markets.

Not much here for Dorine, Jermaine, and Vicki — and all the other Dorines, Jermaines, and Vickis out there — to latch onto.